It also tends to over-reward those who create value by having a strong negotiating position (usually due to coming to the table with lots of capital) and under-reward those who create value through labor. This is better than crony-ism, but it's not at all a panacea.

Over-reward? By what measure? If capital amplifies negotiating power then it means that capital is more important. One who can acquire capital to use in negotiation is using the most leverage to create value.

Labor's value is exactly what someone is willing to pay for it.

By the measures of hard work and value creation being discussed in this thread. I'm sure you disagree. I'll try to save some time by stipulating that this is a value judgment, I likely disagree with your disagreement, and I am happy to agree to disagree.