Karl Marx's labor theory of value asserts that the value of an object is solely a result of the labor expended to produce it.

A thing can be a use-value, without having value. This is the case whenever its utility to man is not due to labour. Such are air, virgin soil, natural meadows, &c. A thing can be useful, and the product of human labour, without being a commodity. Whoever directly satisfies his wants with the produce of his own labour, creates, indeed, use-values, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values.[...] Lastly nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.

Vulgar Economist:

There are two fundamentally different answers to the question of where economic value originates. According to intrinsic theories of value, value is inherent in objects; remains constant despite changing demand, the passage of time, and other factors; and can be "objectively determined" by calculations based upon some fundamental scientific principle. The labor theory of value is clearly an intrinsic-value theory.

The utility of a thing makes it a use-value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use-value, something useful. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When treating of use-value, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use-values of commodities furnish the material for a special study, that of the commercial knowledge of commodities. Use-values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider, they are, in addition, the material depositories of exchange-value.

Vulgar Economist:

The assertion that labor is the sole determinant of value is hard to accept just based upon common sense and experience. The assertion that only labor gives an object value ignores the fact that many natural objects in which no labor has been invested - such as scenic views, pure water, gems and minerals, and wild fruits and vegetables - have economic value. Also the labor theory cannot by its nature account for the fact that people value some natural objects, such as diamonds, tremendously more than other natural objects, such as leaves.

A thing can be a use-value, without having value. This is the case whenever its utility to man is not due to labour. Such are air, virgin soil, natural meadows, &c. A thing can be useful, and the product of human labour, without being a commodity. Whoever directly satisfies his wants with the produce of his own labour, creates, indeed, use-values, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values.[...] Lastly nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.

Vulgar Economist:

The labor theory of value also fails to take into account changing consumer desires and the contextual nature of value. In a horse-and-buggy culture, horse-shoes are tremendously valuable commodities, but in a society without horses they are virtually useless. Similarly in a society with much leisure time, games and recreational facilities become important, but in a subsistence economy in which people must work nearly continuously just to stay alive, such things may actually have negative value.

A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.

Vulgar Economist:

The labor theory also ignores the importance of time and position. A 20-year-old wine and properly-aged beef are far more enjoyable than one-year-old wine and unaged beef. Oil in a desert is a potentially valuable resource, but oil in the local reservoir or in the middle of a farmer's field is a hazard.

Das Kapital:

The value of a commodity would therefore remain constant, if the labour-time required for its production also remained constant. But the latter changes with every variation in the productiveness of labour. This productiveness is determined by various circumstances, amongst others, by the average amount of skill of the workmen, the state of science, and the degree of its practical application, the social organisation of production, the extent and capabilities of the means of production, and by physical conditions. For example, the same amount of labour in favourable seasons is embodied in 8 bushels of corn, and in unfavourable, only in four. The same labour extracts from rich mines more metal than from poor mines. Diamonds are of very rare occurrence on the earth’s surface, and hence their discovery costs, on an average, a great deal of labour-time. Consequently much labour is represented in a small compass. Jacob doubts whether gold has ever been paid for at its full value. This applies still more to diamonds. According to Eschwege, the total produce of the Brazilian diamond mines for the eighty years, ending in 1823, had not realised the price of one and-a-half years’ average produce of the sugar and coffee plantations of the same country, although the diamonds cost much more labour, and therefore represented more value. With richer mines, the same quantity of labour would embody itself in more diamonds, and their value would fall. If we could succeed at a small expenditure of labour, in converting carbon into diamonds, their value might fall below that of bricks. In general, the greater the productiveness of labour, the less is the labour-time required for the production of an article, the less is the amount of labour crystallised in that article, and the less is its value; and vice versâ, the less the productiveness of labour, the greater is the labour-time required for the production of an article, and the greater is its value. The value of a commodity, therefore, varies directly as the quantity, and inversely as the productiveness, of the labour incorporated in it.

Vulgar Economist:

Perhaps the most grievous theoretical fault with the labor theory is that it ignores what economists call time preference. Time preference is the common strong preference for goods and services here and now, rather than later. Present consumption is more valuable than future consumption.

For example, most workers prefer to be paid when their work is completed rather than when their products are sold - which may be months later. For workers to be paid now, rather than later, someone must advance their wages, and clearly this service has a value. But proponents of the labor theory would have it both ways: workers are to receive the full future value of their product now.

The final theoretical failure of the labor theory of value is the value-effort fallacy. It is folly to assume that all effort produces value. Every day each of us wastes time on fruitless efforts. To equate labor with the automatic creation of value is to fallaciously imply that all human effort is infallible and constantly productive.

Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour-power. The total labour-power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour-power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour-power of society, and takes effect as such; that is, so far as it requires for producing a commodity, no more time than is needed on an average, no more than is socially necessary. The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time. The introduction of power-looms into England probably reduced by one-half the labour required to weave a given quantity of yarn into cloth. The hand-loom weavers, as a matter of fact, continued to require the same time as before; but for all that, the product of one hour of their labour represented after the change only half an hour’s social labour, and consequently fell to one-half its former value.

The labor theory is even more absurd in practice. If all value is derived from labor, and entrepreneurial effort is "parasitic", who would bother to invest the time and money necessary to build factories, plan product development or organize a production process? If all profits are "exploitation", what incentive does anyone have to risk money on a new and untried product or service? Where will the money come from to finance new investment in tools?

Vulgar Economist:

Communist countries have not abolished profits. They have merely transferred all profits to the state, which typically uses them to build a huge military apparatus at the expense of consumer production.

Ideally what was supposed to happen was the proles were the constituents of the state. It doesn't work out like that. The "vanguard party" of "professional revolutionaries" are a synonym for the bourgeoisie!!! I mean, do I have to spell it out for you?!? Vulgar Economist:

The labor theory of value is violently anti-consumer by its nature. Under this theory, sellers are compelled to price all goods by the amount of labor that goes into them, rather than how much they are demanded by consumers. Thus stores could charge no more for an aged foreign wine than for a local cheap wine (given equal labor input) or more for the work hacked out by a beginner. This inevitably produces a surplus of unskilled and shoddy work, and a shortage of skilled work - which is exactly the situation that exists in communist countries.

Vulgar Economist:

The labor theory also means the end of all economic freedom. Engels, Marx's disciple, wrote: "For a pure Marxist society to long endure, voluntary exchange between individuals must be abolished." In a communist society you produce what the rulers tell you and consume what scraps they allow you. If you don't like this, you are of course free to relocate - to a slave labor camp.

Vulgar Economist:

The most interesting fallacies of the labor theory of value are methodological. Labor theory arose from two extremely poor methods of economic research. First it attempted to establish economic laws of exchange by examining only supply - ignoring demand entirely.

Vulgar Economist:

Even worse, the entire labor theory is unproven. In the entire first volume of Das Capital, where Marx proposed the labor theory, there is not one "positive proof". Rather Marx offers a fallacious "negative proof" in which he argues:
Premise 1: Some factor in the production of a good gives it value. TRUE;
Premise 2: Only those goods to which man has applied labor have value. FALSE;
Procedure: Examine all the factors producing a good by discarding those which did not create equal value in equal quantity, and end up with one factor - Labor. ARBITRARY;
Conclusion: Labor must be the source of value. FALSE.

Next, Marx never claimed either of those premises. As a matter of fact, he noted that labor wasn't the source for all value:

Vulgar Economist:

The use-values, coat, linen, &c., i.e., the bodies of commodities, are combinations of two elements — matter and labour. If we take away the useful labour expended upon them, a material substratum is always left, which is furnished by Nature without the help of man. The latter can work only as Nature does, that is by changing the form of matter. [13] Nay more, in this work of changing the form he is constantly helped by natural forces. We see, then, that labour is not the only source of material wealth, of use-values produced by labour. As William Petty puts it, labour is its father and the earth its mother.

Thus exchange of items of equal value can have uneven mixtures of these two types of capital, implying that labor alone is not the sole determinant of value.

Vulgar Economist:

The labor theory of value is nonsense both in theory and practice. It ignores the many non-labor factors which create economic value, is based upon unproved assertions, and leads to economic chaos and political slavery.

It is the capitalist error: "Freedom=money(or wealth)". It is true only in capitalism!

Vulgar Economist:

The free market, in contrast, rests upon voluntary trade. If workers choose to contract for employment in factories rather than work their own farms or produce handicrafts, it is because they prefer the wages and conditions in factories.

Vulgar Economist:

An entrepreneur contributes the great value of his organizational ability, foresight, and management skills. Because value is not solely a product of labor, these abilities are extremely valuable. Profits are his just reward for risking capital in an uncertain and changing world.

Its kind of a shame that people don't actually READ and UNDERSTAND before they critique such a subject. Then again, it hasn't stopped capitalists thus far.