Noted Jesuit scholar, Hartmann Grisar, S.J. wrote:
“On July 27, 1516, Martin Luther delivered a sermon in which he expressed himself correctly on the Catholic doctrine of indulgences.… “He correctly emphasized that an indulgence is not a remission of sin, but ‘a remission of the temporal punishment due to sin, which the penitent would have to suffer, be it that it was imposed by the priest, be it that he had to suffer for it in purgatory.’ ‘In the gaining of a [plenary] indulgence, therefore,’ he says in conformity with the belief of the age in which he lived, ‘one may not then and there feel sure of salvation.’ ‘Only those gain a plenary remission of punishment who have become reconciled to God by true contrition and appreciated the value of indulgences for the dead.’ The application of these he explains in the same sermon is made by way of intercession; hence a complete remission of souls in each instance is not to be assumed. The foundation of indulgences he correctly states in these words: ‘They are the merits of Christ and His Saints [i.e., they derive their efficacy from the Treasure of Merits], and we must, therefore, esteem them with all due reverence.’ Whatever abuses may have crept in, he holds that it is ‘most useful that indulgences should be offered and gained.’”[1]
When Luther later attacked the alleged trafficking in indulgences, he did not question the right of the Church to grant them, nor did he say that they were not of great spiritual value. It was somewhat later in his career when he publicly criticized other Catholic teachings (such as Papal Supremacy, priestly celibacy, and the necessity of good works for salvation) and that he also attacked the entire doctrine of indulgences.
The Church bases its authority to grant indulgences on two doctrines: (1) the merits of Christ are infinite and they form an inexhaustible treasury; (2) the Church has jurisdiction in dispensing these merits through the “power of the keys”, or of binding and loosing, conferred by Christ[2] on Saint Peter and his successors.
[1] Grisar, Hartmann, Luther, (New York: St. Louis: B. Herder, 1913), Vol. 1, pp. 124 sq.
[2] Matthew 16:19.