Luther is often accused of being antinomian—that is, “anti-law.” He is misjudged as having promoted faith as being entirely passive, requiring nothing more of the Christian than an easy-believism that severs any ties between faith and works. The charge is a reaction to the well-known rallying cry of the Protestant Reformation: “Justification by faith alone, apart from works.” This did not mean, however, that Luther saw an uncomfortable alliance between faith and good works.
Luther argued in his 95 Theses, often considered the founding document of the Protestant Reformation, that the whole life of a believer should be characterized by repentance. It is not merely an inward change, but outward as well, resulting in the mortification of the flesh (see Rom. 8:13; Col. 3:5, KJV). Among Luther’s problem with indulgences was that those who possessed them might consider them a substitute for good works.
Luther insisted, in his 95 Theses, that works of mercy are preferred to the purchase of pardons. He had advised that the better use of a Christian’s money was to give to the poor or lend to the needy. Money is likewise better spent on the needs of one’s family as opposed to the purchase of pardons unless one just has extra money lying around.
In Luther’s 1522 “Introduction to Romans” he argued that while good works must be done, they are not to be done under compulsion as if one were under law. Luther explains that being without the law is not the same as having no laws, but what the law demands is a willing and happy heart. It’s hypocrisy to live a good life while hating God’s law in one’s heart. “But grace makes the law dear to us.”
Obedience to God’s laws is motivated by faith. Works must be prompted by faith, through which believers are made new by the Holy Spirit. The spiritual person is occupied with external works. Those failing to do good works are obviously faithless, whereas a true Christian is ready “to do good to everyone” and “suffer everything.”
It must be understood that the purpose of good works is not to make oneself righteous, in the sense of meriting a right standing before God. Luther states: “A man is justified without works, although he does not remain without works when he has been justified.”
Alluding to Paul in Romans 6, Luther went on, “…it is liberty only to do good with pleasure and live a good life without the compulsion of the law. Therefore this liberty is a spiritual liberty, which does not abolish the law, but presents what the law demands: namely, pleasure and love. Thus the law is quieted and no longer drives men or makes demands of them…Our liberty is…a liberty that does many works of all kinds, and thus is free from the demands and debts of law.”
The above post, where possible, borrows the exact phrasing of Luther's "Introduction to Romans" from J. Theodore Mueller's translation of Commentary on Romans by Martin Luther. The Introduction, sometimes called Luther's preface to Romans, was actually written years after his commentary, but has been placed before the commentary in some editions. While some sources wrongly state that the preface was written in 1552 (an impossibility since Luther died in 1546) it was actually written in 1522 when Luther was in hiding and considered an outlaw. During that time he wrote introductions to each book of the New Testament.