Does it indicate loss of salvation or sanctification?
ESV - 25 For circumcision indeed is of value if you obey the law, but if you break the law, your circumcision becomes uncircumcision.
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I do not believe Paul is teaching loss of salvation in Rom 2:25, but he may indeed be chastising certain circumcised Jews about the important responsibilities of living as a sanctified (set apart) member of the covenant made with father Abraham (Gen 17:9-14). Concerning this verse in Romans, and given the context of the surrounding verses about circumcision and Torah observance (Law obedience), I believe Paul is trying to convey, to the Jews primarily (i.e. the “circumcised” ones who were in possession of the Torah), that the outward sign of circumcision is of value if it is commensurate with keeping Torah—both of which are supposed to flow from a heart of genuine love for God (Deut 6:5, 6). Basically, the Abrahamic covenant (the paradigm for faith) and the Mosaic covenant (the paradigm for obedience) are supposed to work in harmony (Deut 30:6; Rom 2:13; Jn 14:15; 1 Jn 5:3). Indeed, Paul contrasts the Gentile of Rom 2:14, 15, who has the “work of the Law” written on their heart, as evidenced by the fact that they “by nature do what the Law requires” (Rom 2:14), with the Jew of Rom 2:17-29 who “relies on the Law, boasts in God, and is instructed from the Law” (Rom 2:17) and yet is found to be a transgressor of the Law by stealing (Rom 2:21), committing adultery, and robbing temples (Rom 2:22). We see then that violation of Torah (Law) dishonors God (Rom 2:23) and essentially invalidates the purpose of bearing the outward sign of circumcision as a Jewish member of Isra'el, because you bring shame to God and yourself in the sight of the Gentiles (Rom 2:24). You do not lose your salvation if you violate Torah, and God never expected perfection in the first place. Indeed well respected Christian author C.E.B. Cranfield has aptly noted, “It seems that what is meant here is not a “perfect fulfillment of the radical demands of the Law, but a real faith in God and the serious engagement with obedience which springs there-from” (Cranfield, 1.171, n. 3). To be sure, true atonement/forgiveness was never far away. Old Testament persons simply needed to repent and bring a sacrifice to receive atonement (Lev 4:27, 28, 31), which, even without animal sacrifices is nevertheless consistent with the NT application of this principle anyway (1 Jn 1:9). Thus, the crescendo of Paul’s teaching about the Torah-keeping Jew who is supposed to be circumcised both inwardly and outwardly is revealed in Rom 2:28, 29 where he describes a Jew whose praise comes not from man but from God himself. Cranfield’s conclusion is fitting: “It seems therefore better to understand Rom 2:25 to mean, not that the Jew’s circumcision has been annulled in God’s sight, but that he has become uncircumcised in heart (i.e., one whose heart is far from God and whose life is a contradiction of his membership of the Covenant people), and now, though still a member of God’s special people to whom God is still faithful, stands in his human existence in a negative, and no longer in a positive, relation to God’s purpose in history, and is outside that Israel within Israel, to which Paul refers in Rom 9:6 (Romans, 1.172).”
Circumcision was an external sign of the covenant that God made with Abraham and his descendants, who became the nation of Israel (Genesis 17:10). The Law given by God to Moses for the nation of Israel outlined God's requirements for Israel as to how to obtain eternal life (that is, through perfect obedience to the Law). As Paul indicated in Romans 2:25, circumcision and the Law would be of value if a person were capable of the perfect obedience to the Law that God demanded. However, in its practical effect, the Law did not and could not save or grant eternal life, since no sinful human (circumcised or not) was or is capable of that perfect obedience (Galatians 2:16). And for those who transgressed the Law, the value of their circumcision as a sign of being under the Abrahamic covenant was annulled, and they would become the same in God's eyes as if they had never been circumcised, and were no longer in a special covenant relationship with God. So (in my opinion), Paul's use of the image of uncircumcision did not indicate a loss of salvation (since one cannot lose something that they never had to begin with), but was meant to emphasize the impossibility of achieving salvation under the Law
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