Paper money only has value because of the TRUST in the institution behind it. Years ago it was paper money issued by individual banks (I had a great-uncle who owned one), today it is the Federal Reserve backed by the US Treasury (ie taxpayers). If that trust goes, there is nothing backing paper except more paper. At least with the gold/silver reserves of years ago, you could get hard metal in exchange.
You are 100% correct - it's been a while since I studied economic theory - nothing has value in and of itself, it is only human endeavours that give it so.
Years ago it was paper money issued by individual banksAnd that under the so-called "gold standard." Those private issues were paper money. They weren't even "backed" by gold. They were backed by the institutions alone. Sound familiar?
The purpose of the Fed was to streamline and standardize those issues to allow for flexibility and liquidity when required.