If there’s one federal institution that’s less popular than The United States Congress right now, it has to be the Federal Reserve.

The Federal Reserve is the central bank of the United States. Its broad goals are to “direct monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.”

Aside from its role in regulating the consumer economy, it is also something of a ‘Bank’s bank’. It regulates bank deposits, provides short-term loans to help establish liquidity and works to maintain the general health of the financial system.

In the United States, central banks are something that the public has always had a skeptical eye for; ever since Alexander Hamilton successfully fought for the charter of The First Bank of The United States in 1791.

The first two attempts to establish a central bank in the United States created solely governmental institutions, both banks were eventually either deprived of their deposits, failed to have their charters renewed or deemed unconstitutional.

In 1913 The Federal Reserve Act was passed, creating the third central bank which we use today, The Federal Reserve, being partly governmental and partly commercial, is a hybrid sort of institution.

Now this is one of the biggest arguments politicians like Ron Paul and other anti-federal proponents like to make; that the fact that the fed is partly private and owned by commercial banks somehow constitutes some sort of giant conspiracy against the people of this country. This argument is misguided and naïve.

Now, let’s say you have just been shot and are suffering from a bullet wound. Who are you going to trust to treat your wound? An accountant? A lawyer? A politician or bureaucrat? No, you’re going to trust a physician, somebody with experience in the field. You’re going to trust somebody like Ron Paul, because he is a physician by practice.

Mr. Paul has no formal education or background in economics or financial matters, yet some people like to believe he knows more about the economy than economic PhD recipients. But I digress; back to the bullet wound analogy.

So say you have, by far, the largest and most complex economy in the world, and you have to figure out some way to keep it stable and help prevent or lessen the effects of depressions/recessions. Who are you going to hire to do this job? Laywers? Doctors? Ron Paul? No, you’re going to hire people who manage money professionally, people who have academic and practical backgrounds in these and related fields.

As a result of America’s wonderful market economy, professional talent is concentrated into specific areas of interest through incentives such as salary and rank. So following this logic, some of the most talented people in the field of finance and economics are going to be the people who run the largest private financial institutions.

The truth is as long as we have a fiat currency, the management of that currency will be absolutely necessary. And people who are nostalgic for or condone going back to a “gold standard” are as misguided as Mr. Paul. It’s impossible to sustain a $14 trillion US economy, much less a global economy, let alone grow either of these, based off of a hunk of shiny metal.

I would also like to believe, as advanced as we are, people would understand that these shiny metals — along with paper currency — have no intrinsic value; so it’s only pragmatic to choose the more practical and manageable form of currency.

The Fed has done a fairly decent job of mitigating the economic pain brought about by necessary and occasional recessions and depressions, and has virtually eliminated the “panics” and “bank-runs” that were numerous before the institution’s inception.

Prior to the establishment of the Federal Reserve, the average life of a recession/depression/panic/etc was 6.3 years; since its creation in 1913, that average has fallen to 2.75 years. The Great Depression is the outlier that skews the post-fed statistic, and if you remove it, the average falls to 1.7 years.

Now, don’t get me wrong. I do not believe the Federal Reserve is a perfect institution; nothing is perfect. The Fed could definitely use a time-delayed audit every now and then and possibly more oversight, but it’s important to balance that with the autonomy that the Federal Reserve needs in order to operate so that its great powers are not exploited for financial or political gain.

The current financial crisis highlighted flaws not only in the Federal Reserve, but the financial structure as a whole. However, this is not an argument against the Fed. Economic and monetary policies are still maturing, and with every misstep we get the chance to learn from our mistakes and improve.