The dominant form of criminal penalty now used in the U.S. -imprisonment -- is seen as serving primarily an economic function, over and above its functions of retribution and deterrence. Given the chronic tendencies for oversupply of labor in advanced capitalist economies, imprisonment serves to restrain directly yet maintain a portion of the surplus; the threat of imprisonment serves indirectly to pacify an even larger portion. In times of stronger industrial demands for labor, the criminal justice system responds by granting more conditional releases (i.e., paroles) so that, while gainfully employed, part of the workforce remains under the direct control of the state. When considering the entire 50 state sample, we find that the relationship between unemployment and new court commitments to prison and conditional releases was opposite from that predicted by the neo-Marxian paradigm, but conformed to these predictions for a subsample of Southern states. Strength of relationships did not vary consistently over the business cycle, but tended to grow intertemporally in the Southern states. These findings are contrasted to those of earlier studies and the latter are critiqued methodologically. (Author abstract)