Hey Michael,
Your current position on the way to understanding the monetary system is where I was stuck for a few years as well, but it misses a few key points (kinda like IMA, where you think “Now I got it!” – and then you find out there is another, deeper level to it…).
The part about fractional reserve banking is true, but the bad news is: Money, debt and civilization are interlinked since the beginning and there never was a civilization without debt slavery/forced debt or an economy based on “labor”.
--- WARNING: Wall of Text coming ---
Fractional reserve banking is just a more powerful tool and faster in creating the side effects that happen in all monetary systems/civilizations.
The short version of how civilization, the economy and debt come into being simultaneously is:
War lord / charismatic leader assembles a group of warriors ---> subdues a population/tribe ---> forces taxes on population (in the beginning of civilization grains/animals, later metal for weapons and even later gold) ---> everybody except leader and warriors is in debt and has to start producing a surplus to pay taxes (first debt) ---> people who produce anything other than the tax-“currency” (grains, metal, gold and today paper/digital money) have to start trading to get said “currency” or face harsh punishment ---> the economic/civilization cycle has begun!
Without the initial debt (tax) there is no economy as people have no surplus to trade and the whole cycle is dependent on the establishment of agriculture (without agriculture no storable surplus ---> subduing people brings no gains as they can only hunt/gather enough to survive themselves).
And as people have to constantly produce a surplus (to pay tax) and rely on agriculture, they produce more children to ease the labor burden ---> leads to overpopulation and as land is limited ---> children have to either borrow existing land from previous generation (= go into debt with steep interest rates around 30%) or clear new land / conquer new territory. If they fail to pay back interest on borrowed land, they become debt slaves to the creditor ---> huge pressure to expand.
The civilization expands and grows and competes with others ---> has to advance weapons/technology or gets conquered ---> more and more specialization of labor force ---> economic growth and increasingly more refined “achievements”/high culture ---> reaches high point of expansion ---> slow decline OR sudden collapse OR gets conquered OR invents fractional reserve banking to kick the can further down the road ---> expands economic system/rule over ever bigger chunks of the globe or if not, faces gigantic collapse.
In the past the big collapse was often prevented through a general debt forgiveness/freeing of the debt slaves whenever there was a new ruler or every fixed number of years, but that also meant the civilization never became as “advanced”/refined, as the pressure to invent and produce was relieved/reset to a lower level.
Here are some nice graphs that show societal rise/fall and debt/interest rates throughout history:
The whole process was first discovered/explained by Gunnar Heinsohn (Prof. of War Demography at NATO Defense College) and Otto Staiger in
“Eigentum, Zins und Geld: Ungelöste Rätsel der Wirtschaftswissenschaft” (Property, Interest and Money: Unsolved Riddles of Economics). They trace the development of civilization/debt throughout history and rely on empirical/archaeological evidence beginning in Babylon and even further back.
Building upon their findings, the whole concept was further refined and put into a complete theory of economics by Paul C Martin in
“Der Kapitalismus: Ein System, das funktioniert” (Capitalism: A System that Works) – the title is ironic
The book, published in 1986, already predicted our current situation and the behavior of the central banks/governments in the 2008 crisis and has a “nice” outlook for the coming future as well.
Unfortunately, this information is unavailable in languages other than German, but if you are interested, here is a link to a nice PDF summary of the concepts by another German author (in German, but maybe you can use Google Translate or something similar):
https://www.docdroid.net/mX5uquo/ein-buch-fur-keinen-der-kapitalismus.pdf#page=8--- End of Wall of Text ---
TLDR: No debt = no civilization/economy. There unfortunately never was an economic system based on labor. (At least none that we know of at this point)