Ephesians 2:9-10 — Faith vs. Work

Ephesians 2:8 is clear that we are not saved by anything other than because God has dealt graciously with us by giving us salvation as a gift. The way we obtain this gift of salvation is when we receive it by faith. Whether in the Old Testament or in the New Testament, those who have been justified always lived by faith. Consequently, the Scripture says Abraham "believed God, and it was accounted to him for righteousness" (Genesis 15:6). In the New Testament, Scripture says regarding us, "having been justified by faith, we have peace with God through our Lord Jesus Christ" (Romans 5:1).

In Ephesians 2, the Apostle Paul doesn't simply imply that we are saved through faith alone but goes on to plainly say that "... you have been saved through faith, ... not of works, lest anyone should boast" (Ephesians 2:8-9). However, doesn't James say that "faith without works is dead" (James 2:20). James goes on to ask, "Was not Abraham our father justified by works...?" (James 2:21). He also says, "You see then that a man is justified by works, and not by faith only" (James 2:24). Doesn't James seem to contradict Paul?

How does Scripture harmonize Paul and James?
How does works factor into our salvation?
Why a proper understanding of that relationship is necessary so that you don't become a legalistic joyless defeated Christian?