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Money works only because everyone believes everyone else will accept it. Its value does not come from the material it is made of. The rules of money are invented by people, so they can be changed, and they have been changed repeatedly, often in a crisis.
In 1716–1720, the Scottish gambler John Law persuaded France's regent to let him found a bank that issued paper money. He merged it with the Mississippi Company, which held a monopoly on trade with French Louisiana. He then printed notes to feed a speculative frenzy in the company's shares. When the bubble collapsed in 1720, the currency and share prices crashed, and Law fled France. His scheme still anticipated modern central banking and the use of money creation to stimulate an economy.
When a bank lends out deposits while depositors still treat those deposits as cash on hand, it creates new money. This process began with goldsmiths issuing receipts for more gold than they held. It makes the money supply depend on private lending and leaves banks exposed to runs, which is why lenders of last resort and deposit insurance were later invented.
Tying money to a fixed quantity of gold means the money supply cannot expand when the economy needs it. Falling prices raise the real burden of debts, which is why indebted American farmers backed the 1890s free-silver movement. During the Depression, countries that abandoned gold sooner, including the U.S. under Roosevelt in 1933, recovered faster than those that clung to it.