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“Catholic” comes from the Greek word “katholikós,” which means, “universal.” So, when we say that Lutherans are catholic, it means that we belong to the one, holy, [universal], and apostolic church of Jesus Christ.
Prior to the Reformation, there was the Western Catholic Church and the Eastern Catholic Church, also known as the Orthodox Church, a split that occurred in 1054 A.D. When the Reformation took off, the intention of Martin Luther and his fellow reformers was that the bishops and pope would heed the clear words of Scripture and enact some necessary reforms in the Western Church (primarily that we are justified by God’s grace alone, through faith alone, in Christ alone, apart from good works). Sadly, these needed reforms were rejected and the Roman Catholic Church split away from Luther and the Evangelicals (those who sought to cling to the Gospel).
The name “Lutheran” was a pejorative term invented by the Roman Catholics (similarly to how they discuss the origins of the term “Roman Catholic” at www.catholic.com) and was never the name Luther sought for this reform movement to be known as. Rather, he wanted those who clung to the Gospel to be known as Evangelical Catholics. Why? Because Lutherans are Catholic and Evangelical (emphasis on the Gospel).
Lutherans are also known as Augsburg Catholics since the Augsburg Confession is both a Catholic document and the main confession of faith for Lutherans following the Ecumenical Creeds (Apostles’, Nicene, and Athanasian).
Lutherans are “catholic” because they belong to the universal or Catholic Church of Jesus Christ.
"Evangelical" comes from the Greek word euangelion Which simply means "Good News" or "Gospel." The key insight in Martin Luther's recovery of the Gospel is that we are saved by grace, through faith and not by the good things we do. This challenged the Roman Catholic position that a person must earn their salvation by being "good enough" in the eyes of God.
Beginning with Luther's reforms this Gospel-centered view of the Christian life was recovered, in this view the emphasis in salvation was no longer on human actions in attempts to reach up to God but on God's action in Christ as He reached down to us.
Christian's can and should live in joy and peace knowing that God loves us in spite of our sinfulness. With this view in mind the understanding that our good works are a response to God's grace was also recovered in the Church.
Lutheran's are "evangelical" because they are focused on these central truths of Christianity. We are a people of the Gospel.
Lutherans are sacramental because we believe that God doesn’t only work through his spoken Word, but that he delights to work through means to deliver his grace to us.
Under the Old Covenant, God worked through the means of the Levitical sacrificial system of burnt offerings and the blood of animals to deliver his grace to the people of Israel. In the New Covenant established by Jesus’ death on the cross and resurrection from the dead, God continues to work through means to deliver his grace to his people.
So, not only does God give his grace (faith, forgiveness of sins, life, and salvation) by means of the spoken and preached Word (Romans 10:17), but he also delivers his grace by means of the Sacraments of Holy Baptism (Matthew 28:18-20, Mark 16:16, Acts 2:38-39, Romans 6:3-5, & 1 Peter 3:21), Holy Absolution (Matthew 16:15-19, John 20:22-23, & James 5:16), and Holy Communion (Matthew 26:26-29, Mark 14:22-25, Luke 22:14-23, 1 Corinthians 11:17-32).
Lutherans believe that Baptism “is not simple water only, but it is the water included in God’s command and connected with God’s Word” (Small Catechism IV.1). They also believe that Baptism saves, because, “It works forgiveness of sins, delivers from death and the devil, and gives eternal salvation to all who believe this, as the words and promises of God declare” (Small Catechism IV.2).
Lutherans believe that Holy Absolution, also known as Confession, has two parts: “the one is that we confess our sins; the other is that we receive Absolution, or forgiveness, from the confessor, as from God himself, and in no way doubt, but firmly believe that our sins are forgiven before God in heaven by this” (Small Catechism V.1).
Lutherans believe that Holy Communion, also known as the Sacrament of the Altar, Holy Eucharist, and the Lord’s Supper, is “the true body and blood of our Lord Jesus Christ, under the bread and wine, for us Christians to eat and to drink, instituted by Christ himself” (Small Catechism VI.1). Not only is the bread Christ’s true body and the wine his true blood, but the benefit of eating and drinking Christ’s body and blood “is shown us in these words, ‘Given for you’ and ‘shed for you for the forgiveness of sins.’ This means that in the Sacrament forgiveness of sins, life, and salvation are given us through these words. For where there is forgiveness of sins, there is also life and salvation” (Small Catechism VI.2).
"We do not abolish the Mass, but religiously maintain and defend it. For among us masses are celebrated every Lord’s Day and on the other festivals, in which the Sacrament is offered to those who wish to use it, after they have been examined and absolved. And the usual public ceremonies are observed, the series of lessons, of prayers, vestments, and other like things." (Apology of the Augsburg Confession article XXIV).
Lutheran's are by and large liturgical in our worship. The Lutheran liturgy is a Western Rite (although there are some Easter Rite Lutheran churches in Eastern Europe) based on the Formula missae. Our Sunday services follow the basic, historic pattern for Christian worship including prelude, gathering, word, meal, and sending. Each part of the liturgy either directly quotes or alludes to scripture. We also follow the Western liturgical calendar to mark the main annual festivals and events that are celebrated liturgically.