Does advertising really shape our tastes - or just reflect them?

The Mirror Makers, by Stephen Fox. New York: William Morrow & Co. 383 pp. $17 .95.

Advertising. A most American institution. And the unofficial consensus of the people I talk to, both inside and outside the advertising industry, is that it is a most potent institution. Some $55 billion is spent each year in the United States for the purpose of influencing behavior. Advertising is so influential that a growing body of legislation and regulation attempts to control it. And yet, nobody admits to believing it.

It's American because in its modern history it was developed and honed in America, which for the last century has been the leading consumer market of the world.

Stephen Fox has written a lively history of American advertising in ''The Mirror Makers.'' Fox's profiles of key historical personalities challenge the narrow stereotypes of ad men - the Bohemian creative genius and the account executive as a Madison Avenue WASP in a gray flannel suit.

The thesis of the book is in the title. Advertising, according to Fox, does not lead or manipulate society, or bend social mores. Commercial messages mirror the current state of culture. He writes, ''The people who have created modern advertising are not hidden persuaders pushing our buttons in the service of some malevolent purpose. They are just producing an especially visible manifestation, good and bad, of the American way of life.''

Do the paid messages that fill our newspapers, magazines, air waves, and just about every available space in sight from billboards to matchbooks really shape mass tastes and behavior? Were we sold, for example, Richard Nixon by the J. Walter Thompson Advertising Agency professionals that crowded his administration? Does advertising define our morals and values and tell us what we want?

Observations from the memoirs of a young American living in Paris in the 1930 s are, perhaps, typical of many people who look back across the Atlantic and assess American-style promotion from Europe:

I could not get over my amazement at the vast number of unnecessary things we never saw in Paris and didn't miss. I realized that the American economy was based on creating desire for things we didn't need and didn't want.

- John Miles Hines (''One Life Out of Many'')

In his exploration of the issue of leading public thought vs. following social trends, Fox quotes David Ogilvy, one of the most prominent among the advertising giants of our time (who brought us the man with the eye patch in the Hathaway shirt) as saying, ''I believe (advertising) is nothing more than a tool of salesmanship, which follows mores, but never leads them. The public is bored by most advertisements, and has acquired a genius for ignoring (them).''

A study cited in the book says that the average citizen is exposed to 1,600 ads a day, consciously notes only 80 of these, and is provoked either positively or negatively by 12. The more advertising there is, the more the cacophony becomes white noise to the target - the market - advertisers are trying to reach.

Conventional wisdom suggests that skillful advertising can sell anything once. Repeat purchases of the product occur only if there's satisfaction with the product. It's the fail-safe theory that nothing can overcome a bad product. The marketplace is the final judge. Advertising also creates mass demand, and thus economies of scale for manufacturers and lower prices for consumers.

Fox argues convincingly that advertising peaked as a motivating force in the 1920s, when it learned to utilize the power of fear - the fear of having bad breath or yellow teeth. Today, Fox asserts, advertising claims are restricted, more or less, to the truth, and this has reduced the impact of advertising on our lives.

But other observers point to the exploitation of human emotions that has remained a strong force in the creative departments of advertising agencies. It's easy to cite examples of ads that play upon fear, sexuality, pride, and social acceptance. When ads are analyzed in this way, I wonder if it matters whether they just mirror society or manipulate it? The questions should be: What does an ad play to? When and under what circumstances does it make a positive contribution?

Fox bluntly summarizes his position, ''The image in the advertising mirror has seldom revealed the best aspects of American life.''

Ned Crecelius is manager of the Monitor's in-house advertising agency.