That was one way, but it definitely was not the only way. A lot was people writing letters to one another and sharing papers by word of mouth. There will always be elitist groups, yeah, but we shouldn't support them. It's about doing good work, not gatekeeping. Reviewing is supposed to be critical, but that's not the same as adversarial. Science is about progressing human knowledge and we need to ask if this system is accomplishing that or if we're just caught it Goodhart's nightmare.
I'm not seeing good evidence that journals or conferences do any better of a job at this than pre-print servers do. They do have a slight edge, but that is not that great. The edge is because the default position is to reject and so identifying just a small percentage of good papers does affect this outcome, but that's not a meaningful signal. Have an extremely high false positive reject rate and a high false positive accept rate doesn't make the signal meaningful, it just means it is very noisy.
I don't give this very low signal any meaning because the truth is that good works filter to the top regardless of the journals. They rise because peers share them, not because they got the stamp mark from a journal.
The 'republic of letters' was much more similar to the journal-style approach than to modern arxiv, IMO.