The labor theory of value is an attempt at an objective view of value, while marginal utility is an attempt at subjective valuations. Mutualists reconcile this be saying a) yes, in a healthy economy, labor is the basis of value (a healthy economy, I am assuming here, supplies 2 of the 3 factors– land and capital– on a “free” basis [free land, free money], leaving labor as the only factor receiving a return), but b) the measure of that labor value is a very subjective thing. Francis Dashwood Tandy puts it such:
“It should be noted that the labor value does not necessarily mean the actual amount of labor embodied in the identical article, but the amount of labor necessary to produce an article of exactly similar and equal [marginal] utility.”
Labor value, because of this consumer-end of things, is truly a measure of supply and demand: A producer will not sell under cost (the value they have for their effort), and a producer will not buy for above cost (what Tandy is talking about). Cost– labor value–, then, can only be defined by way of mutual agreement.
If land is no longer monopolized, and neither is credit (thus giving access to capital), labor is the only factor left with which to make a return, because scarcity of land and capital (which make marginal utility stray from labor-cost) are non-existent. If this is so, marginal utility still applies, but it is marginal utility of labor (not land or capital, to any great degree) which applies. Labor receives a price, because it is the only good treated as a scarce resource (due to free access to land and credit). This would correlate with labor being the direct source of market value.