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In learning about indulgences, I started to wonder why a work was necessary for the giving of an indulgence. In looking at the Catechism of the Catholic Church, it appears to me that a work is necessary because the Church chooses to make it necessary (italics mine):

Obtaining indulgence from God through the Church

1478 An indulgence is obtained through the Church who, by virtue of the power of binding and loosing granted her by Christ Jesus, intervenes in favor of individual Christians and opens for them the treasury of the merits of Christ and the saints to obtain from the Father of mercies the remission of the temporal punishments due for their sins. Thus the Church does not want simply to come to the aid of these Christians, but also to spur them to works of devotion, penance, and charity.

I'm not really sure that I understand this view. Of course, these works of devotion, penance, and charity are good things, but it seems like it would be more compassionate to give out indulgences to everybody so that they do not suffer from punishment for their sins in purgatory, and find other ways to encourage people to do these works. Indeed, there seems to be a similar argument in Thesis 82 in Martin Luther's 95 Theses:

Why does not the pope empty purgatory for the sake of holy love and the dire need of the souls that are there if he redeems an infinite number of souls for the sake of miserable money with which to build a church?

I realize that this thesis was addressing the idea that "when the coin in the coffer rings, the soul from purgatory springs" and and other abuses of indulgences. But the sentiment seems to match the question I am asking: wouldn't it be more merciful if the pope were to choose to grant indulgences to everybody, thus reducing the suffering of those in purgatory (or empty it entirely) regardless of their works?

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The Council of Trent, which condemned Luther's errors and heresies, wrote this on 4 December 1563, in its 25th session, "Decree Concerning Indulgences" (see my emphasized parts):

Whereas the power of conferring Indulgences was granted by Christ to the Church, and she has, even in the most ancient times, used the said power delivered unto her of God, the sacred holy Synod teaches and enjoins that the use of Indulgences, for the Christian people most salutary, and approved of by the authority of sacred Councils, is to be retained in the Church; and it condemns with anathema those who either assert that they are useless, or who deny that there is in the Church the power of granting them. In granting them, however, it desires that, in accordance with the ancient and approved custom in the Church, moderation be observed; lest, by excessive facility, ecclesiastical discipline be enervated. And being desirous that the abuses which have crept therein, and by occasion of which this honorable name of Indulgences is blasphemed by heretics, be amended and corrected, it ordains generally by this decree, that all evil gains for the obtaining thereof,—whence, a most prolific cause of abuses amongst the Christian people has been derived,—be wholly abolished. But as regards the other abuses which have proceeded from superstition, ignorance, irreverence, or from whatsoever other source, since, by reason of the manifold corruptions in the places and provinces where the said abuses are committed, they can not conveniently be specially prohibited, it commands all bishops diligently to collect, each in his own Church, all abuses of this nature, and to report them in the first provincial Synod; that, after having been reviewed by the opinions of the other bishops also, they may forthwith be referred to the Sovereign Roman Pontiff, by whose authority and prudence that which may be expedient for the universal Church will be ordained; that thus the gift of holy Indulgences may be dispensed to all the faithful, piously, holily, and incorruptly.

Granting indulgences "by excessive facility" makes "ecclesiastical discipline be enervated" (enervetur: weak, unmanly, effeminate). The Church, however, wants strong soldiers for her exultation and God's glory. Her supreme law is the salvation of souls, not the confirmation of the faithful in their sins.

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It seems like it would be more compassionate to give out indulgences to everybody so that they do not suffer from punishment for their sins in purgatory, and find other ways to encourage people to do these works.

Indeed so. However, the reason why indulgences and works are connected gets to the heart of what an indulgence is for.

The Church teaches that even though one's sins may be forgiven, the effect of sinning goes on. Even after sin is forgiven, a consequence called the temporal punishment of sin still remains.

So does that mean that God is punishing us even after we repent? No! It's not like this:

Sinner: God, I'm really really sorry. Please forgive me, I won't do it again.
God: That's OK. You're forgiven. It never happened. Oh, by the way—I'm still penalizing you anyway, you worthless wretch.

Instead, as we're told,

Sin has a double consequence. Grave sin deprives us of communion with God and therefore makes us incapable of eternal life, the privation of which is called the "eternal punishment" of sin. On the other hand every sin, even venial, entails an unhealthy attachment to creatures, which must be purified either here on earth, or after death in the state called Purgatory. This purification frees one from what is called the "temporal punishment" of sin. These two punishments must not be conceived of as a kind of vengeance inflicted by God from without, but as following from the very nature of sin. A conversion which proceeds from a fervent charity can attain the complete purification of the sinner in such a way that no punishment would remain.

(Catechism of the Catholic Church, paragraph 1472)

In other words, our repentance for sins, and their forgiveness, can't change the historical fact that we have indeed sinned. And sin by its nature orients us more towards the world than towards God: repentance and forgiveness don't change this. (This is why one sin makes it easier to commit another: once you're oriented away from God it's easier to keep going that direction.)

The idea of an indulgence is that even this natural consequence of sin can be reversed. The goodness of God, the good works of the saints, and their constant prayers on our behalf permit us to conquer this ill effect as well.

"A perennial link of charity exists between the faithful who have already reached their heavenly home, those who are expiating their sins in purgatory and those who are still pilgrims on earth. Between them there is, too, an abundant exchange of all good things." ...

We also call these spiritual goods of the communion of saints the Church’s treasury, which is "not the sum total of the material goods which have accumulated during the course of the centuries. On the contrary the 'treasury of the Church' is the infinite value, which can never be exhausted, which Christ’s merits have before God. They were offered so that the whole of mankind could be set free from sin and attain communion with the Father." ...

"This treasury includes as well the prayers and good works of the Blessed Virgin Mary. They are truly immense, unfathomable, and even pristine in their value before God. In the treasury, too, are the prayers and good works of all the saints, all those who have followed in the footsteps of Christ the Lord and by his grace have made their lives holy and carried out the mission the Father entrusted to them. In this way they attained their own salvation and at the same time cooperated in saving their brothers in the unity of the Mystical Body."

(Catechism, paragraphs 1475–77; quotations from Paul VI's apostolic constitution Indulgentiarum Doctrina)

So then, the saints, especially Mother Mary, are constantly praying that we be released from temptation, from sin, and most importantly in this case from the side-effects of sin. It is because of this constant prayer that God grants us grace to overcome sin's "temporal punishment".

But as always, God is never satisfied to just do things for us. Having made us like Him, He desires us to cooperate with him in our own salvation:

The merit of man before God in the Christian life arises from the fact that God has freely chosen to associate man with the work of his grace. ... Moved by the Holy Spirit and by charity, we can then merit for ourselves and for others the graces needed for our sanctification, for the increase of grace and charity, and for the attainment of eternal life.

(Catechism paragraphs 2008, 2010; emphasis added)

The best way for us to reverse the "attachment to the world", this second consequence of sin which indulgences are there to counter, is to actually do things which detach us from the world—these "works of devotion, penitence, and charity" which are mentioned in your question. And thus works are specified for an indulgence, because for a human to turn themselves away from the world and back towards God, it is necessary that they do something to promote this turning away. That's why the Church requires us to do works.

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It is important to note that an indulgence is not redemption and those suffering in purgatory do not need to be redeemed. They are redeemed by the Blood of Christ on the Cross-.

That said it is also important to note that forgiveness, biblically, does not remove punishment. Simply look at David and Moses, and all of Israel the Apostles, all the Martyrs each and everyone o us. Suffering is part of redemption as the Lord says in the Holy Scriptures.

Deuteronomy 8:5, Proverbs 3:12, Hebrews 12:6,Revelation 3:19, Psalm 94:12, Proverbs 13:24 and more….

Understanding Indulgences can be difficult, especially if you start with the wayward teachings of Martin Luther or the distortions of separated brethren in general, It is also difficult to understand indulgences if you do not have a full grasp of what it is humanity fell from and how.

I would need a book to explain it completely so I will try to do it briefly as I can so it fits this format.

  1. What we fell from: The image and Likeness of God. After the fall we were still in his image but not his likeness, the likeness is the Nature that we fell from where the image would be the Person, which we maintained. Think of the “Communicatio idiomatum” which explains the union of Christ to his humanity. We were in the image of God, and had the nature of God, that is a share in his divine life and son ship. This is what we fell from.

  2. How we fell: The sin that was committed in the Garden is the same temptation that each and every one of us face daily and can be described with 3 terms, Sin of the Flesh, Sin of the Eyes and, Pride of Life. There is no sin against God that does not incorporate at least one of these elements. It is the only trick the devil has up his sleeve and it is an effective method of soul stealing.

The above is what we fell from, now, let us look at how we are to return to God and where indulgences connect to the restoration.

  1. The Grace of God: Grace is a free gift. Gods first Free Gift was Creation itself. It was not earned, not merited; even faith was absent from this gift when it was granted. Gods un-merited Grace continues throughout the History of Salvation.

There is a cycle that continues that we learned from out first parents when death was introduced into the world. That is to reject the free Grace of God, via the three fold transgression of Eve Mentioned in “2”, this condition of the human nature is referred to in the Catholic Church as “Concupiscence”. Concupiscence is not a sin in and of itself, but an inclination to succumb to the 3 fold temptations.

Through the Grace of God, by the once and for all time Sacrifice of Christ on the Cross, the ministry of redemption through Christ Jesus offers to us the forgiveness of Sins. This forgiveness given to us through Baptism, (Water & Spirit) is complete, it forgives us of both Guilt and temporal damage when we enter into Christ’s family. However, because of the 3-fold temptation we are subject to and often do, continue to sin, no different than the sin of Eve, a sin is the rejection of the free Grace and in the New Covenant, a rejection of the Sacrifice of Christ on the Cross. When we do this there is damage to our souls, forgiveness is offered for the Guilt, but the damage, not to God, but to ourselves in regards to a tendency to commit sins, still exists. That is the Concupiscence.

This is where I have to simplify even more.

In order, to fight the 3-fold temptation, that concupiscence, we as Christians are to do those things that are in opposition to the actions of Eve. These can be explained in this life in 3-fold Reconciliation.

You mentioned in your question CCC 1478, there is a theme that you will see in Catholicism that never goes away and without concentrating can be easily overseen, In the same way Martin Luther neglected to see it. Sin hid from us, or a better term would be, closed our eyes and our ears to what is plainly in view. It would be very difficult to not see the sin of Pride in Martin Luther, just about everything he wrote had an arrogance about it, But I digress.

The 3-fold Reconciliation can best be seen in the Evangelical Council of the consecrated clergy, Vow of Chastity, Vow of Poverty and Vow of Obedience.
If we look in (1478 of the ccc) we see Devotion, Penance and Charity. When we prepare for lent we see Prayer, Alms Giving, and fasting. There is a thread that ties all these together.

Eve “The woman saw that the tree was good for food (Lust of the flesh )and pleasing to the eyes (Lust of the eyes), and the tree was desirable for gaining wisdom (Pride of Life) So She Took”

God’s Answer to “Lust Of the Flesh”: Fasting, Chastity, Penance.

God’s Answer to “Lust Of the Eyes”: Alms giving, Vow of Poverty, Charity

God’s Answer to “Pride of Life”: Obedience, Prayer, Devotion.

All of these are part of reconciliation, reversing the damage that was caused by our sin after we have already accepted Christ. We are completely forgiven as was David was forgiven but God still punished him by taking away his son. Unlike Eve, we receive forgiveness and with that forgiveness comes the punishment that we need from our father, that punishment comes in the forms listed above while we are in this life. When we die our punishments are given to us as an act of Love and Mercy so that we may be worthy to walk in the Devine light understanding completely that which we fell from and that which we are returning to.

Why doesn’t the Church Just give out the vast wealth of Grace deposit to it? Because it would be an action empty of any meaning, of any teaching, of any Love. Martin Luther did not understand this, Martin Luther who struggled with inner demons wanted what many Christians today proclaim, Forgiveness without temporal Punishment, without mercy and without Justice. We are called to repentance and to make restoration for our transgressions to address the damage done to our souls, not to God, Christ handled that, (See Col 1:24) by the Corporal and Spiritual Works of Mercy we make reparations for our acts, if we fail to do this in our lifetime, we shall do so mysteriously in the next. I for one do not want to stand before God as I am, a sinner, I wish to be cleansed and free from the desires of this life. If I can’t do it on my own here, Christ will do it for me, and my brothers and sisters in Christ who Pray for me and do those things Pleasing to God, will help me by example. There is a relationship between Reconciliation, Purgatory and Indulgences that would take much more to explain here. It is a pursuit which outcome is worth the journey. The best tool you could bring with you on the journey is an open mind, if it’s closed, like so many, there is little hope.

Addition:

I would like to add to this answer, because it helps to clarify the Churches position on the topic of indulgences. The nature of the Graces given to the Church and how indulgence flow those Graces regarding thehe method is of Reception is passive. What do I mean, I mean that concerning the 7 Graces or 7 Mysteries or 7 Sacrements, the Graces are not works, that is, we do not work for them, we do not take them as Eve did because of a desire. The Graces of the Church which flow from Christ are to be received and not taken, there is no taking of Grace. Nothing prior to the reception of these free Graces,works or Faith,has no value, you can work all day long and it means nothing without the Cross of Christ. When you have Recieved the Grace, then the spirit of God works in you and you with it. You can not receive an indulgence if your heart is not contrite and you are not open to the gift. By Works, innitiated by the Holy Spirit working in us because of the Grace that we receive, we merit the indulgence (Penance) which is a Grace of God, which clenses us of the personel damage caused by sin, making us worthy to be with God.

I hope this helps, indulgences is a difficult subject especially given the history of it's abuses.

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