This quote (found here) was brought to my attention by John Bugay. It's a popular quote, simply Google search it. Simply reading the quote as it stands could lead to the following conclusions in a Roman Catholic mind: "So take courage folks, and trust what the Church proclaims as true, and know that it is Christ Himself who is speaking to you through his mouthpiece, His Church.**One final quote from a Protestant authority, you might recognize the name, Martin Luther, 5 years after the Reformation....[source].
The good thing about this popular quote is it's often given with a correct reference (the "5 year" comment above though is incorrect). The comment comes from Luther's 1530 treatise, The Keys found in LW 40: 320-376. The quote is on pages 365-366. Luther's underlying assumption is that the keys have indeed been given to Peter, but also to the entire church as well. For Luther, the text doesn't support the foundation of the papacy. For Luther, the keys have been given to the church, and the rock of Matthew 16 is Christ.
The treatise opens with the following:
The noble saying of Christ to Peter in Matt. 16[:19] and 18[:18], “Whatever you bind on earth shall be bound in heaven,” etc., has been cited. From this quotation they took the word “to bind” and twisted its interpretation so as to make it mean “to command” and “to forbid,” or to make a law and commandment for Christendom. By this kind of reasoning they give power to the pope and boast that he has the authority to bind with laws the soul and conscience of a Christian so that one must obey him in this matter, on penalty of the loss of everlasting bliss and under the threat of eternal damnation. On the other hand, he who is obedient to the pope in this matter shall be saved. To this end they have perverted all quotations of Scripture about obedience and disobedience. By such insolent interpretations of Christ’s word the whole world has been frightened and bullied until everybody has been cornered and made the victim of human doctrine. Well, then, we want to examine and place such an interpretation before the judgment seat of Christ, that is, before his own Word, comparing the one with the other. [LW 40:324]
Luther unpacks this throughout the entire treatise. The focus is on the abuse of papal power, and the non-biblical application of "the keys". Luther states, "the keys of the pope are not keys but husks and shells of the keys" [LW 40:349].
What kind of a church is the pope’s church? It is an uncertain, vacillating and tottering church. Indeed, it is a deceitful, lying church, doubting and unbelieving, without God’s Word. For the pope with his wrong keys teaches his church to doubt and to be uncertain. If it is a vacillating church, then it is not the church of faith, for the latter is founded upon a rock, and the gates of hell cannot prevail against it [Matt. 16:18]. If it is not the church of faith, then it is not the Christian church, but it must be an unchristian, antichristian, and faithless church which destroys and ruins the real, holy, Christian church. [LW 40:347]
Here Luther states Christ's church is founded upon a rock. Is the rock the papacy? Have they been given the keys?
From all this one can gather that the pope really never bound or loosed any person, neither excommunicated nor freed from excommunication anyone. All his actions are nothing but beating the air and shadowboxing. And it is evident that nobody has so little claim to the keys as he who boasts the most about possessing them. All along he has been exhibiting them in his escutcheon, and painted them upon the wall. And, tell me, how can he possess the keys since he neither possesses nor tolerates the Word of God? Truly where the Word of God is not found the keys do not remain either. The keys want to be where God’s Word and the church are, or else they are no keys. Christ has shared the keys with the pope in a truly fine fashion. He retains the true keys, and leaves to the pope the painted ones. The latter he may place in his escutcheon or hang on the wall. They have no place or space in the church of Christ [LW 40:362].
What I have said of the abuse of the keys I have said in the simplest manner possible. Otherwise, if I had wanted to be angry and seek revenge, it would have sounded quite differently. Let him who desires to be a Christian make up his mind to think nothing of the pope’s keys. Let him be loyal to the first two real keys of Christ and his church which do not make laws and sell for money as do the first two keys of the pope [LW 40:363].
Luther tackles the question of whether binding and loosing in heaven and on earth are two different things:
Now let us talk a little about the real basis and true nature of the keys. Christ says, “Truly, I say to you, whatever you bind on earth shall be bound in heaven and whatever you loose on earth shall be loosed in heaven” [Matt. 18:18]. Notice that assuredly, yes assuredly, it shall be bound and loosed what we bind and loose on earth. There is no suggestion of any wrong key. He does not say: what I bind and loose in heaven, you shall also bind and loose on earth, as the teachers of the wrong key so foolishly say. How could we find out what God binds and looses in heaven? Never. And the keys would be without purpose and to no avail. Neither does Christ say, you should know what I bind and loose in heaven. Who would and could know that? But he speaks in this fashion, If you bind and loose on earth, I will also bind and loose right along with you in heaven. When you use the keys, I will also. Indeed, if you do it, it shall be done, and it is not necessary that I do it after you. What you bind and loose (I say) I will neither bind nor loose, but it shall be bound and loosed without my doing so. It shall be one single action, mine and yours, not a twofold one. It shall be one and the same key, mine and yours, not a twofold one. While you do your work, mine is already done. When you bind and loose, I have already bound and loosed.
He binds and joins himself to our work. Indeed, he himself commands us to do his own work. Why then, should we make it uncertain or reverse it, pretending he must first bind and loose in heaven? Just as if his binding and loosing in heaven were different from our binding and loosing on earth. Or, as if he had different keys in heaven above from those we have below on earth. He distinctly and clearly states that they are heaven’s keys and not those of the earth. You shall have my keys (he says), and no others. And you shall have them here on earth. Clearly above and besides these keys of heaven, he can have no others which are not to be used in heaven, but above and outside of heaven. What would they bind there? If now they are the keys of heaven, then they are not of two kinds but of one kind only, binding and loosing here on earth and in heaven above [LW 40:364-365].
Luther insists the "binding and loosing" are the very same thing on both heaven and earth. When God's word proclaims a Christian is loosed from their sin, then they are, both in heaven and on earth.
But such ideas regarding two kinds of keys originate in the mistaken notion that God’s Word is not his Word. Because it is spoken through men it is regarded as the word of men. And God is thought of as ’way up there in heaven, very, very far removed from his Word here below. So we stand there and with open mouth stare heavenward and invent still other keys. Yet Christ says very clearly in Matt. 16:19 that he will give the keys to Peter. He does not say he has two kinds of keys, but he gives to Peter the keys he himself has and no others. It is as if he were saying: Why are you staring heavenward in search of my keys? Do you not understand I gave them to Peter? They are indeed the keys of heaven, but they are not found in heaven. I left them on earth. Don’t look for them in heaven or anywhere else except in Peter’s mouth where I have placed them. Peter’s mouth is my mouth, and his tongue is my key case. His office is my office, his binding and loosing are my binding and loosing. His keys are my keys, and I have no others, nor do I know of any others. What they bind that is bound, what they loose is free, just as if there were no other to bind or to loose in heaven or on earth. If there are any other keys in heaven, on earth, or in hell, they do not concern me. I know nothing of them. Whatever they might bind or loose is not my affair. Therefore, don’t concern yourself about it either, and don’t be led astray. I pay attention only to what my Peter binds and looses. I rely on that, and you should do likewise. In so doing you are already bound and loosed as far as I am concerned. For Peter binds and looses in heaven, and nobody else. This is the right way of thinking and speaking of the keys.
Here we have the true significance of the keys. They are an office, a power or command given by God through Christ to all of Christendom for the retaining and remitting of the sins of men. For so Christ says in Matt. 9[:6], “But that you may know that the Son of Man has authority to forgive sins,” and he says to the paralytic, “arise,” etc. And soon thereafter, “When the crowd saw it … they praised God who had given such authority to men” [Matt. 9:8]. Do not allow yourself to be led astray by this Pharisaic babbling by which some deceive themselves, saying, “How can a man forgive sins when he can bestow neither grace nor the Holy Spirit?” Rely on the words of Christ and be assured that God has no other way to forgive sins than through the spoken Word, as he has commanded us. If you do not look for forgiveness through the Word, you will gape toward heaven in vain for grace, or (as they say), for a sense of inner forgiveness [LW 40: 365-366].
From this, some Roman Catholics have concluded Luther is admitting the foundation of the papacy. But in context, Luther is doing no such thing. The keys given to Peter are the forgiveness of sins- the proclamation of the word of God. These are given to Peter, true, but also to the entire church.
There are numerous passages in which Luther comments on Peter and the keys. Here's a few.
Here, Luther admits the keys were given to Peter, but really to the whole Christian church:
It is not necessary for the ordinary man to dispute much about the power of St. Peter or the pope. What is more important is to know how one should use it for salvation. It is true that the keys were given to St. Peter; but not to him personally, but rather to the person of the Christian church. They were actually given to me and to you for the comfort of our consciences. St. Peter, or a priest, is a servant of the keys. The church is the woman and bride, whom he should serve with the power of the keys; just as we see in daily use that the sacrament is administered to all who desire it of the priests [LW 51:59].
I believe that there is forgiveness of sin nowhere else than in this community and that beyond it nothing can help to gain it—no good deeds, no matter how many or how great they might be; and that within this community nothing can invalidate this forgiveness of sin—no matter how gravely and often one may sin; and that such forgiveness continues as long as this one community exists. To this [community] Christ gave the power of the keys, saying in Matthew 18 [:18], “Whatever you bind on earth shall be bound in heaven.” He said the same to Peter as an individual, representing and taking the place of one and only one church, “[I will give you the keys of the kingdom of heaven, and] whatever you bind on earth,” etc., Matthew 16 [: 18–19] [LW 43:28].
Now let us see how these pious people treat the holy words of Christ in this case. Christ says to St. Peter, (Matthew 16:18) “Thou art, or art called, Peter; and on the Petram (i. e., on the rock) I will build My Church. And I will give unto thee the keys of the kingdom of heaven, and whatsoever thou shalt bind on earth, shall be bound in heaven, and whatsoever thou shalt loose on earth, shall be loosed in heaven.” From these words they have claimed the keys for St. Peter alone; but the same Matthew has barred such erroneous interpretation (Matthew 18:18), where Christ says to all in common, “Verily, I say unto you, whatsoever ye shall bind on earth, shall be bound in heaven, and whatsoever ye shall loose on earth, shall be loosed in heaven.” It is clear that Christ here interprets His own words, and in this 18th chapter explains the former 16th; namely, that the keys are given to St. Peter in the stead of the whole Church, and not for his own person. Thus also John, in the last chapter, (John 20:22), “He breathed on them and said, Receive ye the Holy Ghost; whosesoever sins ye remit, they are remitted unto them, and whosesoever sins ye retain, they are retained.” To maintain the sole authority of St. Peter, when there are two texts against one, many men have labored in vain. But the Gospel is too dear, and they have had to admit until now that in the first passage nothing special was given to St. Peter for his own person.
Thus it was also understood by many of the ancient Church fathers. It is likewise proved by the words of Christ just before He gave the keys to St. Peter, where He asks not Peter only, but all of them: “What think ye of Me?” (Matthew 16:15), Then Peter answers for them all, “Thou art Christ, the Son of the living God.” Therefore the words in (Matthew 16:18) must be understood in accordance with the words in (Matthew 18:16), and in (John 20:22); and one passage must not be explained in a manner contrary to two strong ones, but the one be properly explained by the two. The proof is all the stronger where there are two instead of only one, and it is but fair that one should follow the two, and not two the one. It is plain, therefore, that all the apostles were equal to Peter in all matters of authority. This is shown by their acts as well as by their words, for Peter never selected an apostle, nor made, confirmed, sent out, or ruled over one; although if he had been their superior by divine appointment this would have had to be, or all of them would have been heretics. Moreover, all of the apostles together could not make St. Matthias and St. Paul apostles, but this must needs be done from heaven, as it is written in Acts (Acts 1:23 ff.), and (Acts 13:2). How then could St. Peter alone be lord over them all? This little nut no one has been able to crack as yet, and I trust they will be so gracious, even against their will, to leave it uncracked a while longer.
And just as this Romanist boasts that the papal chair survives in spite of repeated assaults on its authority, so I, too, boast that the Roman See ofttimes, and to this very day, has striven in mad frenzy for such power, yet has never been able to attain it, and, God willing, shall never attain it. It is an utter farce when a man boasts that he has always kept what he has never had. Why does not our dear Romanist boast also that the city of Leipzig has never been taken away from him, in which he does not even have a house? It would be a boast of equal value with the other. So they chatter on incessantly; anything that comes to their tongues is blurted out. Therefore, I say, that though the Roman tyrants have striven hard against the Gospel, to take the common power of the Church and make it their own, yet the word of Christ still stands, “The powers of hell shall not prevail against it.” Now if this power had been given to the pope by divine right, God would not have desisted; at some time it would have been fulfilled. For he says that “not a jot or letter shall remain unfulfilled.” But in the extension of Roman power over all Christendom not one letter has ever been fulfilled. [source]
Who is the Rock of Matthew 16? Luther states:
The Lord then says, “And I tell you, you are Peter, and on this rock will I build my church.” In St. John 1 [:42], he calls him Cephas, “You shall be called Cephas,” Keph in Hebrew, Kepha in Chaldean, and Petros or Petra in Greek, Rupes in Latin, all of which mean rock in German—like the high rocks the castles are built on. Now the Lord wants to say, “You are Peter, that is, a man of rock. For you have recognized and named the right Man, who is the true rock, as Scripture names him, Christ. On this rock, that is, on me, Christ, I will build all of my Christendom, just as you and the other disciples are built on it through my Father in heaven, who revealed it to you.” In plain German one would say, “You say (on behalf of all) that I am the Messiah or Christ, the Son of the living God; very well then, I say to you, you are a Christian, and I shall build my church on a Christian.” For in German the word “Christ” means both the Lord himself, as one sings, “Christ the Lord is risen, Christ ascended to heaven,”127 and he who believes in the Lord Christ, as one says, “You are a Christ.” Thus Luke in Acts 11 [:26] says that the disciples in Antioch were first called Christians, which is why names have survived such as, “Christians, Christendom, Christian faith,” etc. So here our Lord gives Simon, son of Jona, the name “man of rock” or “Christian” because he, from the Father, recognized the rock, or Christ, and praised him with his mouth on behalf of all the apostles.
From this it is clear enough that by the building of his church on the rock or on himself, Christ meant nothing else but (as was said above, from the apostles Peter and Paul) the common Christian faith, that whoever believes in Christ is built on this rock and will attain salvation, even against all the gates of hell; whoever does not believe in Christ is not built on this rock and must be damned, with all the gates of hell. This is the simple, single, certain understanding of these words, and there can be no other. This the words clearly and convincingly prove, and they agree with the words in the last chapter of Mark [16:16], “He who believes and is baptized will be saved,” and with John 11 [:26], “Whoever believes in me shall never die.” Yes, I say, remember well and mark diligently that the Lord in Matthew 16 does not speak of laws, Ten Commandments, or the works we should or could do, but of the Christian faith or the work of the Father, which he, with the Son and the Holy Spirit, performs in us, namely, that he spiritually builds us on the rock, his Son, and teaches us to believe in Christ, that we might become his house and dwelling, as is proven in I Peter 2 [:4–7] and Ephesians 2 [:19–22].
Further, “And I will give you the keys of the kingdom of heaven, and whatever you bind on earth shall be bound in heaven, and whatever you loose on earth shall be loosed in heaven” [Matt. 16:19]. The Lord wants to provide well for his churches, built on him and believing in him. Because they should preach and confess the gospel before the whole world and govern on the basis that Christ Jesus is the Son of God, he wants to have their words honored and not scorned, as though he were speaking personally from heaven. Now he who hears the gospel from the apostles or churches and does not want to believe should be sentenced to be damned. Again, if he should fall after he has believed and will not convert back to faith, he should be sentenced in the same way—he should keep his sins and be damned. On the other hand, he who hears and believes the gospel, or turns from his sins back to faith, should have his sins forgiven and should attain salvation. And he will consider such a verdict in heaven as if he had spoken it himself. See, these are the keys of the kingdom of heaven and they should be used to give eternal retention and remission of sins in the church, not just at the time of baptism, or once in a lifetime, but continuously until the end—retention for the unrepentant and unbelievers, remission for the repentant and believers.
And here remember once again, and write it upon your heart, that the Lord does not speak here of laws or the works we should do, but of his works, namely, of retention and remission of sins. To retain or forgive sins is the work of the divine majesty alone. But he wants to perform and accomplish these works of his through his church; that is why he says that whatever it will bind or loose on earth should be bound or loosed by him in heaven. That is why, too, the two items follow one another in the Children’s Creed, “I believe in one holy Christian church, the communion of saints, forgiveness of sins”; so, where the church is, namely, the building on the rock, there are the keys to the forgiveness of sins. [LW 41:314-315]