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Recognizing the difference between law and gospel is important for several reasons. In order for the law to be a school master to bring us to Christ, it has to be understood in its full severity. Reading commands as if they are only advice keeps us from seeing our need for the One perfect law keeper, Jesus Christ. 1 Timothy 1:8 says that the law is good when it is used lawfully. When the law is taught as law, souls are convicted and made new.
On the other hand, to read gospel passages as if they're obligations for us to fulfill is to turn good news into bad news. To read the indicatives of Scripture, such as “...the just shall live by faith...,” as if they are instead imperatives, (let us live faithfully), is to mishandle the Word of God. Sometimes the gospel is presented as a set of new laws, laws which are easier to keep that the Old Testament regulations. But a softer set of rules cannot provide relief from our sin nature inherited from Adam.
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I am privileged to sit under preaching where this distinction is carefully observed. The sweetness of the gospel is set before me often, and the imperatives of Scripture are proclaimed, yet the two are not blurred. Preaching should not just be a 45 minute list of “oughts.” God's Word is to be handled with respect to its original purpose. Theodore Beza has rightly said, “Ignorance of this distinction between Law and Gospel is one of the principal sources of the abuses which corrupted and still corrupt Christianity.”
A hymn by Isaac Watts
The law commands, and makes us know
What duties to our God we owe;
But 'tis the gospel must reveal
Where lies our strength to do his will.
The law discovers guilt and sin,
And shews how vile our hearts have been;
Only the gospel can express
Forgiving love and cleansing grace.
What curses doth the law denounce
Against the man that fails but once!
But in the gospel Christ appears
Pardoning the guilt of numerous years.
My soul, no more attempt to draw
Thy life and comfort from the law,
Fly to the hope the gospel gives;
The man that trusts the promise lives.