Marxism is not based upon the assumption that private ownership of private property is unethical. Marxism (as propounded by Marx) is based upon a dialectical analysis of historical events and their causal relationship to evolving economic conditions. Any moral judgement then passed on the perceived social relations engendered by these economic conditions is only a reaction to conclusions reached via Marx's philosophical process; it is not an intrinsic part of that process.
It is misleading to dismiss the 'meaning' of Marx's class distinctions on the basis that they are not applicable in a free-market economy beacause not only has no ideal free-market economy ever existed, but dominant economic systems in the period contemporaneous to Marx's writing were very far from free. Furthermore, the coincident location of labour and capital in one individual does not negate the conclusions Marx comes to, even if he fails to fully account for it. Marx draws contrasts, rather than comparisons to the medieval feudalism; the capitalist mode of production is, as viewed from a Marxist standpoint, a distinct evolution beyond a feudal system.
Labour creates value; without labour, production ceases. Machinery, tools, raw materials, administration and coordination are not, together or individually, in themselves sufficient for production to take place. The compulsion of a person to work (other than under a system of slave or indentured labour) comes not from any actual physical force, but rather from a contraction of alternatives. Aside from in a society where alienation of the populace from the land has not taken place on a wide scale (untrue of most major countries even as early as Marx's nineteenth century), thus rendering subsistence agriculture a viable mode of existence, the alternatives offered are typically work or starve. Starvation is, for obvious reasons, not any real alternative at all.
Even if it were the case that competition kept wages in line with prices, the criticism aimed by Marx at the capitalist mode of production is not based solely on highlighting its propensity to perpetuate widespread conditions of material poverty. Rather, Marx points to the alienation of labour from the product of its endeavour, and thus the dehumanisation of the labourer through his inability to identify emotionally or intellectually with the substance or output of the major part of his waking life. To be in work, to be fed and clothed and housed, all these are but little compensation for living a life where one's own emotional and intellectual interests as a social organism are not constantly and absolutely the paramount motivation for one's actions.
Marxism does not come down to a fundamental argument about whether or not private ownership of property is moral. Marxism, as dialectical philosophical method posits that the abolition of a capitalist system is inevitable as a result of a deterministic process in which society gains consciousness of its own historical role. As such, realisation of the evolutionary process through which social and political superstructures have passed is concurrent with rejection of those structures and the establishment of new forms in which private property will not be the means by which social relations are determined. Even were Marx to refrain (and he does not) from passing moral judgement on past, present or future social structures, this does not effect the fact that his belief in the deterministic nature of historical events both explains the form of those structures in the past and the evolution they will go through in the future.
A Marxist viewpoint would point out that efficiency of productivity is not, in itself, a desirable aim. A capitalist system, in treating material production, rather than humanity, as an end, is absolutely guilty of devaluing the individual.
It is misleading to draw the main distinction as being between a capitalist societal form (as typified by North America or Western Europe of the nineteenth or twentieth centuries) and a 'communist' one (as typified by the Soviet Union or China in the twentieth century). State ownership of property is merely the supplanting of individual ownership of private property by the ownership of said property by a centralised political elite. The underlying social relations of labour to capital remain essentially unchanged. It is the shattering of these relations that represents a realisation of Marxist predicitions, and thus the 'revolutionary' governments of Lenin or Mao can be taken to be 'Marxist' in name, but not in practice.