Between grace and gift there is this difference. Grace means properly God's favor, or the good-will God bears us, by which He is disposed to give us Christ and to pour into us the Holy Ghost, with His gifts. This is clear from chapter 5 [of Romans], where He speaks of "the grace and gift in Christ." The gifts and the Spirit increase in us every day, though they are not yet perfect, and there remain in us the evil lust and sin that war against the Spirit, as Paul says in Romans 7 and Galatians 5, and the quarrel between the seed of the woman and the seed of the serpent is foretold in Genesis 3. Nevertheless, grace does so much that we are accounted wholly righteous before God. For His grace is not divided or broken up, as are the gifts, but it takes us entirely into favor, for the sake of Christ our Intercessor and Mediator, and because of that the gifts are begun in us.
What follows is one part appreciation for Luther's quote, and many parts tangential appreciation for something a bit different.
Martin Luther provides a helpful distinction between grace, defined as God's favor, and gift, which is an expression (but not the entire expression) of that same favor. An analogous distinction could be made between Law, defined as God's order, and precept, which is the expression (but not the entire expression) of God's order.
Apart from being an excellent distinction between grace and gift, Luther's quotation provokes an interesting question: How is it that God's grace--the electing grace of which Luther speaks here--how is it that this grace is distributed equally and universally to all saints, whereas God's gifts are distributed unequally and particularly? The answer, I think, exhibits the harmony of unity and diversity, of the One and the Many. Grace is the unifying principle, the One Thing that binds all of God's redemptive activity toward Creation; and gift is the distributive principle, the Many Things that declare in innumerable ways the multi-faceted, varied character of God's redemptive activity toward Creation. The summary term for all of these details concerning grace and gift is Electing Love.
We have access to God's gifts by God's grace, and our access to God's grace is through our union with Christ, who is Himself the Elect Son of God, and the Elect Man of God, from before the foundation of the world.
There is a sense in which there are only two individuals considered in the decree of predestination and election. There is the First Man, Adam, in whom the decree of reprobation is represented (whether or not the individual man, Adam, is elect or reprobate; since Adam's own representation need not remain in himself, though it remains in those who follow from him by natural generation), and the Last Man, Christ, in whom the decree of redemption is represented (whether or not the individual man, Christ, requires redemption, since his own representative status does not depend upon--indeed, rather would be destroyed by--his own possession of the condition of sin).
Now it is quite true that every human being has been decreed unto reprobation or redemption, individually. However, one of the key issues that people have with election is that it occurs apart from any individual's own contribution (we might say, his own merit). How is it, it is asked, that any one person should be redeemed or reprobated apart from consideration of his or her own choices, which make up his or her identity? Must not the individual be free from any compulsion, so that, by one's own choosing, he or she may love the God who gave His Son to redeem man from sin?
The unquestioned assumption in the question is that one's own identity is something determined by one's own choices. This is the Existentialist philosophy of "Existence precedes Essence," or "I am what I do," or "I am that I choose." Rather, we should recognize that an individual's choices are a result of his or her identity, not a cause of it. An empirical examination does not seem to justify this claim, since we often discover that who we thought we were is different than what we think as a result of some choice or action. "I never though I could do X" seems to support the idea that my choices determine what I am. However, our identity is not made up of our self-knowledge, for, as the Apostle John declares, "we do not yet know what we will be" (1 Jn. 3:2). That our choices reveal to us an identity that heretofore was unknown does not prove that choice determines identity, but rather it shows the limitations of human knowledge. We may know ourselves truly, yet not completely--our identity is being shaped, but not by our choices.
What then shapes our individual identities, of which our choices are but partial revelations?
God's omnipotence entails that no power, indeed, not even the power of an individual human will, is constituted or made effectual apart from God's will. What I choose, what you choose, what anyone chooses according to the liberty of our highest affection, depends upon the exertion of God's power entirely. What I choose on the basis of, that is, my identity, rests entirely upon the favorable or disfavorable willing of God. God wills unto one's good, or one's ill, and the choices one makes reveal to himself and the world whether he or she has God's favor or not (though the full revelation of individuals is obscured in large part until the consummation of the Age and the Return of the Son in Judgment).
On what basis then does God constitute Those Favored and Those Unfavored?
Since it is God's will that constitutes these two groups, there is no higher standard to which God could appeal, no standard upon which He could examine whether to choose X for reprobation and Y for redemption. Since no individual human will can act upon from God prior determination of that will, it is by God's will alone that any subsequent will, wills. Therefore God's will alone factors in the equation. The choice, for God, is arbitrary without being capricious. That is, God is free to choose without doing injustice in however He chooses.
Despite the arbitrary nature of God's constituting the reprobate and the redeemed, there is another factor that liberates God from the charge of injustice, or even of unmitigated self-interest. The decree to elect and reprobate is not undirected, but has its end in the honoring of the Eternally Begotten Son. The Eternal Father desires to offer His Eternal Son an inheritance, therefore He elects unto the Son a people for Him to provide for, protect, and to glorify into His own image, just as the Eternal Son is the image of the Eternal Father. The Father is reproducing in giving His Son an inheritance what the Son will reproduce in His that inheritance--an honorable, glorifying imitation, which is the essence of divine love, which is the Holy Spirit (so much more could be said to unravel this seamless garment!).
The glorification of the Son, and consequently of the Father, is such that there must be an Enemy; an Enemy who possesses his own people to become an unholy imitation of his blasphemous nature. Such unholy anti-love is but the antithesis, the contrastive highlighting, of Divine Love. The darker the shadow of Satanic opposition, the brighter the light of the Son's glorification.
The failure to appreciate the beauty of election is not due to any lack of aesthetic sensibility or faculty of recognition--for in nature, in artistic imitation, the use and appreciation for contrast is so universal as to be an unmistakable principle of beauty, even when it is not considered the sum and whole. No painter can achieve plays of light apart from contrasts in darkness. No musician can achieve the heights of a major tone apart from the lows of a minor. There can be no "is" without there also being an "is not."
No, the rejection of God's electing love (which include reprobation) stems from the universal recognition of one's own status as one of the condemned. Each convict rails against the Just Judge, not because the convict can ultimately deny the justice of the verdict, or the power of the Judge to execute the sentence, but rather from the convict's own dissatisfaction that he, the convict, cannot be, himself, the Judge. That motive characterizes the "old man," "the flesh," the child of darkness, the Satanic being--a motive that can only accuse the Maker of All Things of not doing everything according to the command of the Made.
But to those who have been constituted in Christ, and have been realized as such in history (i.e. the Spirit of adoption has testified to their spirit that they are indeed, sons of God with the Son), there is all of joy and marvel at the beauty of God's electing Love--that He would include such lowly and dependent creatures in the glorification of the Most Exalted and Eternal Son! Had God wanted to, it would have been enough for Him to have allowed all humanity to enjoy the few years of pleasure on this most magnificent orb of joyous beauty--even that much would be more than we deserve as His enemies. Yet even the joys of earth were not enough an expression of the Love of Our Great God, who was neither so mean nor so impoverished as to keep even the most self-debasing and rebellious of His creatures from participating, after their own creaturely fashion, in the Divine nature.
Christian, what can you but do than exclaim, "Marvelous! Wonderful! All Too High and Lofty Design! O, Beauty and Love Immeasurable Great! Worthy, Worthy, O Most Worthy God; Holy Father, Holy Son, and Holy Spirit! Amen!"