The free work Reddit moderators do has been valued at $3.4 million annually

That seems an extremely conservative estimate to me. The linked article says:

The team recorded the work done to keep 126 subreddits moderated for an average of 142 days, and analysed automated logs generated whenever the 900 human moderators took an action.

In total, more than 800,000 actions were recorded. Some actions contained full timestamps of when work began and ended; others only contained a single timestamp – for removing a post, say – and so the time taken was estimated at what the researchers believe is a lower bound.

The median amount of time any individual spent working daily is 10 seconds, but the top 10 per cent of moderators spent between 3 and 40 minutes working for Reddit. Two in every three actions were taken by the top 10 per cent of moderators.

There's a major problem with this methodology, which is the assumption that a moderator is not working unless they're taking an action. But that's not the case, is it? Sitting around keeping an eye on things and not doing anything because no action is currently required is still work! Just like a security guard. You pay them for all of the 8 hours they spend watching your stuff every day, not just for the thirty seconds a month spent actually apprehending thieves.

According to this Reddit post, there were over 70K moderators on Reddit six years ago. Even if they were only paid the US minimum wage of $7.25 per hour and each of them on average only spent fifteen minutes a day keeping an eye on things, it would still cost Reddit almost fifty million dollars annually. And that's based on a number that's six years old, which is certain to have grown a lot since then.

So yeah, Reddit is benefiting from free labor a lot.

Of course, not every mod team is great. But I mostly hung around small to medium-sized subs for my hobbies and never had an issue with their moderators.

Somebody above quoted an old ModSupport post that said there were over 70K moderators, and that was on 2017, without the free mods Reddit will just not be able to replace them at all

And the biggest advantage of Reddit is that you have a variety of communities with a variety of rules. Some don't allow off topic posts or comments, some vet every single top level comment.

If these were all paid employees, they couldn't keep up with all the various rules of every sub, and they certainly coulent spend the time needed to see what rules need to be changed to shape the community to be something productive and valuable.

I've seen that number floated around and am also skeptical. But if it's accurate, Reddit should just... do it. Full control of their site of hundreds of millions of users for the payroll of a medium sized business? They'd be stupid not to.

And honestly, I wouldn't even be mad. Paying their mods would effectively pop the balloon of my moral outrage.

You want to deny your employees the tools they need to do their jobs? Fine, it's your productivity that will suffer, no one else's. You want to rule the site with an iron fist? At least you're not being huge hypocrites and pretending it's community-run.