Therefore, it is better to go with interpreting James according to its genre not as a doctrinal treatise, but as a letter on practice and encouragement; not didactic but parenetic. (Daniel H. Chew, "Did John Calvin Teach a Doctrine of Secondary Justification? Refuting Steven Wedgeworth on Secondary Justification," Trinity Review 357 (April/ May 2020): 5. Available here.)
Justification is an act of God's free grace, whereby He pardons all our sins, and accepts us as righteous in His sight, only for the righteousness of Christ imputed to us, and received by faith alone. (WSC Q33). The Protestant doctrine of Justification by Faith alone states that faith is contrary to any human work whatsoever. The only meritorious element in faith is the work of Christ, whereby He imputes His righteousness to us so that we are considered righteous not because we are actually righteous, but because we have an alien righteousness (iustitia aliena). By definition of the fact that the ground of justification lies outside of us (extra nos), our works or lack thereof plays no part in justification, as God justifies the ungodly (Rom. 4:5). To claim otherwise is to return to the Roman Catholic position that faith is a faith formed by love (fides formata caritate). Contrary to popular Evangelical distortions, Roman Catholicism actually has a robust view of faith. It is manifestly false that Roman Catholicism teaches Semi-Pelagianism or even Pelagianism. I would even say that an orthodox Roman Catholic (a minority given the state of today's Roman Catholicism but I disgress) is probably more tuned to grace than the average Evanglical today.
But, it is objected, isn't it true that all Protestants hold that faith without works is a dead faith? If one means that Protestants reject Antinomianism, then most definitely. In popular parlance, we can say that we are "saved by faith alone, but the faith that saves is never alone." That however is a rather reductionist cliche – good for a simple understanding but not the actual Protestant understanding of the relationship between faith and works. The focus on works is a practical outflow of true faith; a most pragmatic observation. The idea is simple: Those who are truly saved do not live like those who are not saved. The emphasis is not on the doing of works, but as works as evidence of true faith, the so-called Practical Syllogism (Syllogismus Practicus). The Practical Syllogism is practical, not doctrinal. It is meant for living out one's live, not probing the nature of faith, which brings us to the issue of James 2.
Perhaps because James seems to be an overt contradiction of the doctrine of Justification by Faith Alone, much ink has been spilled trying to "reconcile" Paul with James. However, after much thought on the matter, I think that much of the manner in which we deal with James is wrong. Most try the path of reconciliation, whereas if we dwell on the genre of the epistle and its place and use for the Church (not just James 2 but the entire epistle of James), you will notice that the parenetic (encouragment) genre of the epistle means that it was never meant to be used doctrinally. This is NOT to say that it does not deal with any doctrine at all, but that is not the focus of the epistle. Therefore, in reading James 2, we need to see it not as a discussion on the nature of faith, the order of salvation, the grounding of justification and all other questions we try to shoehorn into the text, but rather as an exhortation for Christians to live worthy of our heavenly calling. There is a big difference here between reading James 2 as doctrinal, and as parenetic. If we read it as doctrinal, we will think that James is qualifying the nature of saving faith as being "leading to good works" or things to that effect. The difference between the two approaches can be seen in the application of these two interpretations to a person (whom we shall call John) who has not done what is right in a particular situation:
The "doctrinal" interpretation:
Pastor: John did not do what is right at that instance. He has failed to do good. According to James 2 therefore, I must question his salvation, warn him that he is danger of hellfire if he does not repent and do what is right the next time.
The parenetic interpretation:
Pastor: John did not do what is right at that instance. He needs to be encouraged to do better the next time, since He is a child of God.
The parenetic nature of the genre implies that we should not treat James as discussing the nature of faith. James is meant to be encouragement toward fellow believers, not a rod to beat people down if they fail to be "faithful" in their Christian living, however one defines "faithfulness." It means that we should not go to James 2 when discussing whether faith is living or dead, because that is not its purpose, unless one wishes to discuss the "faith" of demons. For the nature of faith, we should go to the doctrinal texts of Scripture, and leave the practical outworkings to the working of faith in sanctification, not in justification.
How then should we interpret James and his definition of faith? We do not, because James does not have a definition of faith. Use James in the way it is intended, and stop using it for self-critical introspection or judgmentalism.