Before I go any further with this, I need to address this statement you made, which must be resolved between us before this discussion can continue, because this is a fundamental statement which I consider is a false premise.
1. The nature of substitution is that one is substituted for another in the act of punishing the guilty. It is the whole idea embedded in the typology of animal sacrifice. The animal chosen is guiltless and spotless, apparently the best and most perfect one available. It is sacrificed as a sin or guilt offering. This is what Hebrews explains to us.
The Hebrew writer never says the animal used is a substitute for the guilty party (sinner). The animal sacrifice used is a shadow of Christ’s sacrifice and in that way, it is kind of substituting for Christ until He came. The Hebrew writer is limiting the description of the OT sin offerings to just animals but flour could be used (Lev. 5), the blood of animals was used for outward cleansing. The blood of Christ is much greater and can cleanse our hearts.
There are lots of reasons why the Jews would not feel the sacrifice was replacing them:
1. Animals were not always used for sin offerings (lifeless flour could be used).
2. In Lev. 5 it talks about securing and bringing an offering as a penalty for your sin and not as a replacement for the sinner.
3. The Priest is a much better “substitute” for the sinner, since he is doing the killing of the animal.
4. The animals are humanely as possible killed, while a sinner deserves to be tortured to death for intentional sins.
2. God is not "punishing the innocent" as you claim, in a common sense of just punishment, since the Innocent One is not being punished for no reason at all, or for an unjust reason. It may appear that way from a human viewpoint, but from a spiritual viewpoint, that is, God's viewpoint, it is a substitutionary punishment to satisfy justice on sin. This is what Rom. 3:25-26 is about.
It is not “justice on sin” since sin itself can do nothing, but we are needing justice on the guilty sinner (us), God the Father and Judge is to see to the just/fair punishment (or discipline), if at all possible, of the disobedient child, by Biblical rules. Penal substitution says Christ replaced the guilty disobedient child, but that means God is seeing to the punishment/discipline of Christ instead of the guilty child? I am not saying “there is no reason given for God seeing to the punishment of Christ”, I am saying to have Christ punished in our stead is unjust by Biblical standards.
If God must justly see to the punishment (or discipline) of the guilty how is the punishing of Christ not the punishing of the innocent?
Did Christ become a sinner on the cross and thus in need of punishment?
Did God not see to the crucifixion of Christ for our benefit?
3. God is not "letting the guilty go free" as you claim, in the common sense of foregoing justice on a criminal and setting him free to commit more crimes. In the case of this substitutionary punishment, God's attribute of justice is satisfied, which enables God to reconcile to Himself those He has chosen to invade their hearts for receiving redemption. Therefore, it is not "letting the guilty go free," since changing their nature makes them no longer guilty.
If “changing their nature” is what is needed to “receive redemption”, than there is no need for Christ to go to the cross, since God is powerful and Loving enough to do that change without Christ going to the cross?
The injustice of having Christ go to the cross will not satisfy justice, justice satisfy justice.
Penal Substitution is the allowing of the guilty to go free unpunished, you are just adding the idea God doing lots of other stuff to this now free person.
Again, we are making the problem out to be God’s problem, which Jesus solves by going to the cross, which now allows God to do stuff He has been wanting to do. God has a problem with justice being satisfied, God has a problem reconciling people, God has a problem invading the hearts of people and God has a problem receiving people.
The prodigal son only needed to turn to the father and all the unbelieving sinner needs to do is mentally turn to the Father, for God the Father is ready and wanting to shower each of us with unbelievable gifts, but God will not force charity on us if we are unwilling to humble accept pure charity.
Did the older brother of the prodigal son step in and take the punishment for the prodigal son’s rebellious disobedience or did the father just forgive the son who turned to him? Do you see the prodigal son story lacking justice and/or being inconsistent with the way God is?
This is why God's forgiveness is forensic, just as our justification is forensic. According to justice as an attribute of God, sin has to be punished with death, since "the wages of sin is death." According to this law (or principle), in order for God to bring life to some, He had to substitute the death of one who could conquer it (Christ).
You say: “He had to substitute the death of one”, but why does it have to be a torturous, humiliating and murderous death?
Again you say: “sin has to be punished”, but it is the sinner who has to be punished since you cannot “punish” an intangible like “sin”?
You quote: “The wages of sin is death” which comes up frequently, so what “death” in the context of Romans 5,6 and 7 is Paul referring to here?
The physically natural death , death (separation from God) brought about by sin or death to sin because that is all Paul is talking about in Ro. 5-7?
Christ did not pay any of those deaths on the cross, since they all still continue on and all mature adults experience them until Jesus comes. Death is still with us even after the cross, because of sin.
What cosmic “Law” is out there controlling God?
This whole scenario is something put together with verses taken from lots of place with other more likely meanings.
Therefore, it is not merely a substitution of punishment. It is also a substitution of death and righteousness. "He who knew no sin became sin for us, that we might be made the righteousness of God in Him."
WOW, there is a lot to be addressed with the interpretation of this verse:
What does Christ becoming “sin” mean to you? Did Christ become a sinner? Did Christ become an intangible object of “sin”?
If you go to the NIV there is an alternative translation for at the bottom where “sin offering” is given as an alternative to “being made sin” and we all know Christ was a “sin offering”, so what support is there for that translation?
Paul being a scholar of the Torah, used a Hebraism. In this case, the Hebrew word for "sin" was also used to mean "sin offering" (see the Hebrew word: chatta'ath), and thus to be "made sin" was a Hebrew way of saying "made a sin offering". the NASB cross-references to Romans 8:3 which uses "sin offering" in a similar text as 2 Corinthians 5:21
There is the analogy in 2 Corinthians 8:9; the cross-reference to the clearer statement in Romans 8:3 that Christ was sent "in the likeness of sinful flesh" to deal with sin; and the allusion to Sacrifice in 2 Corinthians 5:21 where it says Christ "knew no sin" in corresponding to the sacrificial animal being free of blemish (otherwise Paul saying "knew no sin" would be irrelevant here).
The Greek word for "sin" that Paul uses is used in the Greek Old Testament both to mean "sin" and "sin offering," with both usages even in the same verse such as in Leviticus 4:3.
You can certainly do a deeper study of 2 Cor 5: 21 and we can go into Ro.3-4.