What do we mean by "justification by faith"?

In his introduction to the collection By Faith Alone: Essays on Justification in Honor of Gerhard Forde, Luther Seminary professor Marc Kolden offers his account of the Lutheran reformers’ notion of “justification by faith”:

First, for Martin Luther as well as the other reformers the whole gospel could be summed up in the phrase, “the forgiveness of sins,” because for Luther “where there is forgiveness of sins there is also life and salvation,” as he puts it in the Small Catechism (5:2). Sin (or sins) refers to everything that is wrong between people and God. Jesus bears the sins of the world and on his account God forgives our sins; they are no longer counted against us. Then all is right between God and sinners, both now and in eternity. Note that the phrase, “the forgiveness of sins,” is very inclusive, as Luther uses it, for it encompasses everything from the saving work of Christ to there being a “new creation” to the anticipation of (and participation through faith and hope in) eschatological salvation now and eventually for eternity. Also, since the wages of sin is death, forgiveness amounts to the sinful person being raised from death to life.

In order to explain all of this properly, the Apology [of the Augsburg Confession] uses the image of being pardoned. Again and again “pardon” is used to explain divine forgiveness. When a sinner is pardoned, everything changes. One who is guilty and deserves to be punished is given a pardon and is no longer considered to be guilty but instead has all the privileges and responsibilities of one who never sinned. The sinner’s role in this is passive; that is, it happens to us, God acts on us. God is the actor, the pardoner, who changes everything. Divine forgiveness, therefore, is not one step in a cooperative process of becoming righteous (or right with God); rather, forgiveness is God’s undeserved gift that makes things right.

Second, to make the case doctrinally or dogmatically within the traditional doctrinal language of justification, the concept of “imputed righteousness” is used to present the centrality of the idea of forgiveness as pardon. In order to justify us (i.e., make things right between God and us), the reformers said, God imputes to us the righteousness of Christ; that is, we are counted as being or are “reckoned” as righteous, altogether apart from our own worthiness (or lack of it). Our sins are not ascribed to us or counted against us, but instead Christ’s righteousness is imputed to us; it is counted as ours. We are declared righteous before God on account of Christ and, as this good news is proclaimed to us (and about us), we can be sure that it is trustworthy because it is God’s word of promise. God’s own trust-worthiness in Christ engenders trust in the hearer. Therefore, the reformers said, righteousness before God is through or by faith (trust) in God’s word; hence, “justification by faith.”

This is a radical departure from the medieval tradition that spoke of some sort of intrinsic or “real” righteousness that comes about in the sinful human being as a result of grace. The Reformation notion of a “forensic” (law court declaration) righteousness moved the focus away from any sort of “empirical” or “actual” righteousness in the Christian to the justifying act of God in declaring us righteous on account of Christ. Critics sometimes chided the Lutheran reformers for holding to a “fictitious” righteousness that was not “real” in the sense of bringing about an evident change within the person but was merely verbal and theoretical. The reformers replied that God’s declaration is more real than human historical “reality” because the declaration that one’s sins are forgiven is a divine promise – it is the last judgment ahead of time. God’s verdict that we are righteous because our sins are forgiven is said to be more “real” than the present “actuality” of our sins. We can trust God’s promise or verdict, in contrast to having to depend on our own successful “actualization” of righteousness with the help of divine power: our “actualization” will always leave us in doubt, no matter how many good works we perform. Hence, “justification by faith apart from works.”

It should be noted that “apart from works” is intended to modify “justification” and not “faith.” This frequently has been misunderstood by Lutherans as well as others to infer that the doctrine of justification leaves no role for works in the life of the believer. The point is that when it comes to justification before God, only the gift of faith is pertinent. But when it comes to life on God’s earth in relation to God’s creatures, good works are commanded for all people—not for righteousness before God but for the good of one’s neighbors here and now.