Labour theory of value

The labor theory of value (sometimes referred to as the cost theory of value) is a doctrine of value which argues that a good or service derives its value from the amount of labor required to produce it. It was subscribed to by many of the classical economists such as Adam Smith and David Ricardo.

Essence and criticism
In The Labor Theory of Value: A Critique of Carson's Studies in Mutualist Political Economy, Austrian economist Robert Murphy provides an example of the theory in mathematical terms:

"Suppose that the price of a haircut is $6, […]. A proponent of the cost theory of value could explain this as follows: The haircut takes thirty minutes of labor, and the scissors are depreciated by 1/20 of their full value, because (let us suppose) the scissors must be replaced after 20 haircuts. The wage rate is $10 per hour, and a new pair of barber’s scissors costs $20, and hence the total cost per haircut is $5 + $1 = $6"

Austrian school economists reject the labor theory for its failure to account for the ever changing preferences of consumers, and instead rely on the subjective theory of value, which takes an approach based on praxeology to understanding economic phenomena.