For it is by grace you have been saved, through faith - and this not from yourselves, it is the gift of God - not by works, so that no one can boast.
For we maintain that a man is justified by faith apart from observing the law.
If, in fact, Abraham was justified by works, he had something to boast about - but not before God.
You see that a person is justified by what he does and not by faith alone.
This is best understood by looking at James 2:24 in the context of James 2:14-26:
What good is it, my brothers, if a man claims to have faith but has no deeds? Can such faith save him? Suppose a brother or sister is without clothes and daily food. If one of you says to him, "Go, I wish you well; keep warm and well fed," but does nothing about his physical needs, what good is it? In the same way, faith by itself, if it is not accompanied by action, is dead.
But someone will say, "You have faith; I have deeds."
Show me your faith without deeds, and I will show you my faith by what I do. You believe that there is one God. Good! Even the demons believe that - and shudder.
You foolish man, do you want evidence that faith without deeds is useless? Was not our ancestor Abraham considered righteous for what he did when he offered his son Isaac on the altar? You see that his faith and his actions were working together, and his faith was made complete by what he did. And the scripture was fulfilled that says, "Abraham believed God, and it was credited to him as righteousness," and he was called God's friend. You see that a person is justified by what he does and not by faith alone.
In the same way, was not even Rahab the prostitute considered righteous for what she did when she gave lodging to the spies and sent them off in a different direction? As the body without the spirit is dead, so faith without deeds is dead.
James is contrasting intellectual faith (which even the demons have) with "living" faith. A person with living faith is affected by it, and does good works; hence Abraham's faith could be seen through his actions. What he's essentially saying in v. 24 is that faith which results in good works is the kind of faith that saves, whereas purely intellectual faith does not.
Paul's argument, on the other hand, is that works themselves don't save us, not even obedience to the Law of the Old Testament.
An article by Peter Davids in Hard Sayings of the Bible explains that James and Paul are dealing with two different meanings of the word "justify." James uses it to mean how someone is shown to be righteous - it's seen through their deeds. Paul talks about how the unrighteous are made righteous, or justified.
Other responses (offsite)
See also the article on justification in Baker's Evangelical Dictionary (article by Leon Morris).
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