Why do Covenant theologians use the word "dispensation," and what do they mean by it?

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The word dispensation has been around for a long time, long before John Darby founded Dispensationalism, and the use of it is not unique to his followers. Covenant theologian Vern Poythress writes:

Virtually all branches of the church, and all ages of the church, have believed that there are distinctive epochs or “dispensations” in God’s government of the world.1

The distinctive then, between Dispensationalism and Covenant theology, is not, then, the use of the word dispensation. Neither is the number of dispensations a distinctive: Poythress continues that you "can make as many [dispensations] as you wish by introducing finer distinctions."1

Instead, the difference is between what theologians from each camp "say about these dispensations, not the fact that the dispensations exist."1 So what's the difference? R. C. Sproul summarizes:

In the [Westminster] confession the word dispensation means a kind of stewardship or administration, which is far removed from the word's usage in classical Dispensationalism. Reformed theology knows nothing of different testing periods or different redemptive agendas for Israel and the church.2

By administration, Reformed theologians refer to the specific mechanisms by which God executes the covenant: for example, A. A. Hodge describes the Old Testament dispensation as "administered chiefly by types and symbolical ordinances," while that of the New Testament "is characterized by its superior simplicity, clearness, fulness, certainty, spiritual power and range of application." But he emphasizes that "in all essential respects" the covenant in the two dispensations is the same.3

These comments barely scratch the surface of the differences between these two theological viewpoints, but fleshing those out is another topic. Suffice to say that the use of the word dispensation is not unique to Dispensationalists, though their understanding of the word entails more than it does for Covenant theologians (like the Westminster divines), who see it as a mere synonym of administration.

References:

  1. Poythress, Understanding Dispensationalists (1986), chapter 1
  2. Sproul, What Is Reformed Theology? (1997), 113–14
  3. Hodge, Commentary on the Confession, 179. For more in-depth discussion of this, see Louis Berkhof, Systematic Theology, 2.3.5.

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