An Englishman asked Dr. Martin Luther about this question, which is very common in England: Whether godly persons who are already justified should expect some merit on account of the works that follow justification? Dr. Martin Luther replied, “It should be understood at the outset that we who are already justified are still sinners, and so we believe in and pray for forgiveness of sins in this life. ‘Therefore let every one who is godly offer prayer to thee’ [Ps. 32:6]. ‘Enter not into judgment with thy servant [for no man living is righteous before thee,’ Ps. 143:2]. This is a certain statement. We’re all sinners and live under the grace of the forgiveness of sins.
“In the second place, God promises reward to those who do works, and therefore we earn something, etc. Surely God gives works to individuals, but differently, as one star differs from another. Yet all of these are under the forgiveness of sins. As heaven (that is, justification) is under grace, so much the more are the stars. As the stars don’t make heaven but only adorn it, so works don’t merit heaven but only adorn justifying faith. This is the only reasoning that solves everything: ‘I believe in Jesus Christ, who suffered under Pilate for us.’ Everything is his; nothing is ours. Afterward, when by grace we are sons of God, we differ in our gifts, just as there are different stars in heaven.
“In short, the article of justification by Christ solves everything. If Christ merits it, we merit nothing. In Christ there are gifts, not merits. Likewise, since capital and substantial righteousness is nothing, how much less will accidental righteousness count in God’s sight? Substantial righteousness is the righteousness of faith, but accidental righteousness is gifts, not merits. God crowns nothing but his own gifts, as Augustine said.
He expounded the term ‘merit’ very well against the deceit of the sophists, who said that the Blessed Virgin merited becoming the mother of Christ, the Son of God, because of her virginity; that is, she was suited in her maidenly body to give birth to him. Truly, an excellent merit! It’s as if somebody were to say, ‘This tree merits the bearing of fruit because God ordained it to do so.’ Surely, one should look upon God’s gifts and ordinance, not upon our works. Thus Augustine carefully reflected on the term ‘merit’ and concluded from the words of Mary, ‘Behold, I am the handmaid of the Lord’ [Luke 1:38] and ‘He has regarded the low estate of his handmaiden’ [Luke 1:48], that it depends on God’s grace and not our merit. The merit of our works is nothing before God. The merit of our justification is grace, or Christ died in vain. Besides, we’re all non-doers because there must be a diversity of gifts. This error comes from a confusion of the law and the gospel; when each of these teachings doesn’t remain in its place and sphere, we turn heaven into hell and hell into heaven.” — Table Talk