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For every taste and budget, a paperback; American Caesar: Douglas MacArthur, 1880-1964, by William Manchester. New York: Dell Publishing Company. 960 pp. $4.50.

This extraordinary book, Manchester's finest, comes over more like drama than history, with the great figures of MacArthur's day cast in walk-on parts, so diminished do they seem next to the monumental general. Not that Manchester overlooks his subject's shortcomings. MacArthur's failure to give credit to subordinates, to ever admit a mistake, or to extinguish the ''pilot light of paranoia'' that Manchester says glowed within him are all there. Yet so are the general's finest qualities, perhaps seen best in Japan after the surrender, where MacArthur helped bring peace, democracy, and women's liberation to a former enemy, earning the admiration of many.

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