'Neo-classical economics says that the price of a good or service is a function of supply and demand. It says nothing about "value."'

The delta between the price generated by the supply/demand curve and the value according to the two things being traded is the entire point of microeconomics as I know it. It's why a trade is a net-positive event for society; both sides must place a greater value on the thing they are receiving from the trade than the thing they are giving up in the trade, or the trade will not take place. There's a bajillion caveats that apply to special cases, but they are, indeed, special cases.

The entire mathematical underpinning of modern economics is precisely a separation between price and value. Take that away and the whole thing is gibberish, and I do not mean a rhetorical or political sort of gibberish, I mean mathematical gibberish. It's the whole foundation.

(To be clear, I'm far more confident about microecon than any particular macroecon theory; I tend to line up with Eliezer that macroecon is anti-inductive: http://lesswrong.com/lw/yv/markets_are_antiinductive/ Note that doesn't mean "Let's just give up and decide it's Marxist"... it's means you pretty much can't know how it works, any theory you can write down is almost instantly made wrong.)

"the older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor."

Well, if by "should" you mean your own opinion, that's your own opinion. In the real world, though, it wouldn't work. Without feedback about what society needs embedded in prices, everybody would just want to do the fun stuff. Unfortunately, in this universe, "the fun stuff" and "what we need to do to live" don't always overlap. Feedback is too important, any significantly-sized system will fly apart without it, and that's why this debate is so important and why Marxism must not be allowed to win, nor any other economic system that sets out to destroy feedback because sometimes the feedback is unpleasant to certain people. If you want civilization to keep rolling along, you need feedback, and if you have feedback, some of it is going to be negative. Anything that successfully removes all the negative feedback will also destroy civilization. Within that constraint there is still a lot of freedom to work with, but it is an immutable constraint.

(And if you feel inclined to take the cheap & easy shot about it all being "negative feedback", or how only certain people are getting the "positive", you really don't understand what feedback is or how it works. Turn off your political brain for a moment, go study how negative and positive feedback interact in something like a gasoline engine. Then maybe come back and consider how those ideas may apply to an economy, rather than starting from trying to create an argument with "negative" and "positive" feedback as if they're black and white paint, as if they are "bad" and "good" respectively, when in fact that's not even the right dimension to measure them on. Studying feedback in ecosystems is also good; the economy resembles ecosystems in many ways, and in fact microecon can even be used to model certain aspects of ecosystems with no humans, too, so that might be even more apt.)