The Archbishop of Canterbury has criticised Britain's "obsession" with prisons, at the same time as inmate numbers reach record levels.
Dr Williams said the system was "chaotic and ineffectual"
Dr Rowan Williams hinted that many minor offences, including some kinds of theft, should not lead to jail.
He also warned against plans to extend privatisation in the prisons and probation sector.
The system often appeared "chaotic and ineffectual" while more "clarity and honesty" were needed, Dr Williams said.
Some inmates are being housed overnight in police stations and court cells after the jail population hit 80,000 in England and Wales.
Delivering the Prison Reform Trust annual lecture, Dr Williams said "custodial obsession, the creation of more and more offences with a custodial tariff, simply chokes the prison system and compounds all the failures in responsibility for prisoners".
"It is not surprising if we have a penal system that too often appears chaotic and ineffectual," he added.
"Nor will I elaborate on the cost to taxpayers of an ineffectual and overloaded system, and the wider cost in patterns of reoffending because of the inadequacy and unevenness of responsibility-building services in such a context."
Any alternative system had to avoid repeating a "zero-sum deadlock".
Dr Williams said: "We need clarity and honesty about what offences can and cannot be appropriately dealt with under the non-custodial and reparative model."
He called for politicians and others to think "very carefully about the tariff for many kinds of theft, for economic crimes more generally, for a good deal in the area of petty vandalism and drug offences".
Short-term sentences for such crimes were simply a "vicious circle" for those who did not react to the stigma of a jail term.
Dr Williams is also said: "Community justice needs to be separated from any suggestion of franchising or privatising the operation of the law.
"The idea that offender management should be put out to tender is one that could sit very comfortably with some sorts of talk about community justice if we are not careful."