Almost every critique of Marx's LTV I've seen has only proven that the one doing the critique has never read a word of Marx. The Water-Diamond paradox is dealt with in the first paragraph of Das Kapital. Marx uses available of economic data to show the relation of man hours in searching for and producing diamonds to the man hours in the production process of other commodities. His argument is that the average time to find, gather, and bring to market diamonds is extraordinarily high in relation to the time it takes, on average, to produce other commodities.
Most capitalist critics of his LTV never address socially necessary labor time (which he considered his most important contribution to the LTV) or abstract and concrete labor time. This leads most capitalist theorists to think Marx was oblivious to supply and demand, which couldn't be farther from the truth. Marx absolutely included supply and demand into his LTV, but argued that supply and demand only acted as modifiers to real value. That is, if supply and demand are in equilibrium something else is needed to explain value, and this is where abstract and concrete labor time comes into play.
When people talk about Marx's optimism I imagine most aren't aware of his Critique of the Gotha Program. In this he said that early socialist society would need to be based on the maxim "To each according to his ability." Early socialist society would still need people to exchange their labor time for some sort of labor credit in order to buy goods. This was because every society needs time to shake away the marks of what it came from. In this sense Marx was extremely pragmatic, refusing to let his ultimate hope for humanity obscure the harsh realities of what humans had become under capitalism. Human society could only then go on to the later forms of socialism (which Lenin later labelled as communist) once scarcity had been resolved and several generations had been raised in a society that didn't value the base materialism and greed of capitalism. The later stages of socialism could only exist when people realized that they only way to distinguish themselves as individuals was through their creative labor. As is seen in embryo today, human skills and interests are naturally diverse. Thus if a society puts its primary value in the development of individual creative labor it can sustain itself materially while rigorously expanding individuality and human freedom.
Most critiques of Marx are shamefully ignorant of his beliefs. The only other author I know of that is as misunderstood as Marx is Nietzsche (who the ignorant somehow call a father of Nazism despite his hatred of imperialistic German nationalism and constant ridicule of anti-Semites). Marx's beliefs were both exceptionally nuanced and consistent with the best relevant data he could get his hands on. Marx never predicted capitalism would end within 100 years, or within any specific time frame. What he did predict was an unprecedented instability of the capitalist system. We should seriously respect a man who predicted that well before the Great Depression, Great Recession, and the very likely collapse of Europe in the near future. The Keynesians have tried and failed to keep economies stables and the Austrians have never been able to describe how exactly a political movement will bring their system to power. Marxism is the oldest of all existing major socioeconomic theories and so far it is the only one that's predictions of capitalism, both political and economic, have been consistent with history.
