From education theory, there are different concepts how to grade an exam: Either you can say that someone gets only by correct answers or you can say: No matter how good someone is, the best 10% get an A, the best 30% get a B, etc.
What are the arguments in using one or the other concept? Would it be a good thing to use both concepts at once?
I recall an undergraduate thesis presentation on grade inflation at a particular liberal arts college in the United States (completed for the Department of Economics).
The thesis can be found here; it is quite readable, and includes the following relevant citations:
Johnson, V. E. (1997). An alternative to traditional GPA for evaluating student performance. Statistical Science, 12(4), 251-278. (DOI: 10.1214/ss/1030037959)
Sabot, R., & Wakeman-Linn, J. (1991). Grade inflation and course choice. The Journal of Economic Perspectives, 159-170.
A popular media piece in Slate entitled Stop worrying about grade inflation.
This last piece remarks:
Indeed, a 2000 Department of Education study found that just 14.5 percent of undergraduates nationwide had a GPA above 3.75. And Henry Rosovsky and Matthew Hartley, in their well-reasoned monograph, found "no large body of writings in which, for example, employers or graduate schools complain about lack of information because of inflated grades."
Hopefully the six references here help give at least a partial answer. To close, I quote from the senior thesis above ($\S$1.3) in which the Johnson reference is $1$ above and the Ellenberg reference is $3$:
What are the consequences of grade inflation?
Absolute grade inflation is problematic because it narrows the range of available grades, which makes grades less precise and comparisons between students less fine-grained and more error-prone (though the importance of this has been disputed; see [Ellenberg2002]). Relative grade inflation is even more problematic, of course. [Johnson1997] summarizes the problems fairly well: students will tend to sort into the classes and / or departments that are graded more easily, professors face pressure to inflate their own classes’ grades to compete for students and receive high marks in evaluations by students, and this pressure tends to flatten grades, which diminishes the rewards that can be given to the most excellent students [Johnson1997, 266].
Your first option---"someone gets [a grade] only by correct answers"---hides some problems. How does one convert a fraction of correct answers into a grade, and correct answers on what problems?
Unless you have some sort of externally given bank of problems with a built in curve, both of these choices are essentially arbitrary. (There happens to be a customary answer to the first question---90% is an A, 80% a B, and so on---but there's nothing particularly canonical about it, and it doesn't address the second question, which questions should a student get 90% of right in order to get an A.)
In some courses you may have some sort of external guide to what adequate performance is; for instance, you might be norming against an exam provided by some external source, or you might have a clear view of what should count as A work. A crucial property of this scenario is that your exam questions wouldn't change if you knew student scores; if all the students get D's this year, you'll conclude that they hadn't learned enough, give them D's, and ask comparable questions next year (possibly while reconsidering how you were teaching).
If that's not the case---if your response to a year where all the students got D's would be to adjust the questions---then implicitly you are setting the grades against an expected class performance. If you look at scores in the 60s and think "This year everyone gets a D, but next year I'll make it easier so that doesn't happen again", you're effectively applying a curve, you're just doing so inconsistently (and in a way which is unfair to some of the students).
Any time the class deviates from the expected performance, you have to ask "Is this deviation a reflection in the abilities of the students, or the quality of the exam?" The latter is actually much more variable than the former, so we often attribute most of the variation to the exam, and adjust class grades accordingly. (Depending on the system, there may be intermediate options; I generally curve exams to an expected median, but some years there are indicators that it's a stronger or weaker group---for instance, I may have particular problems I can do a direct comparison with other year's performances---in which case I adjust the curve a little.)
Phrased differently, curving a class (for instance, by saying in advance what percentage will get each grade), is often characterized as being about some kind of competition amongst students. This isn't necessarily the case. Curving a class is often using an assumed distribution of student performance to norm the exam.
(based on experience, not any formal reference)
I am from the UK, where the first system (absolute grades, ish) is used fairly uniformly. As I understand it, the basic idea is that the purpose of an exam is to decide whether someone has achieved the level required to gain a qualification (or is progressing at the expected rate). The question being asked is 'has this person reached the level of competency that this qualification is intended to certify?' The answer to that question does not depend on how well others in the class do. Standards should be measured by actual achievement; having everyone doing uniformly badly is not acceptable (yes there's a problem with this, in that tests focus on a small proportion of what a student is capable of).
Nevertheless it is important to keep an eye on the distribution, as it's hard to consistently write assessments at exactly the same level each time, so there has to be some adjustment for that. We do also have a problem with grade inflation over time, as there is a high incentive to focus on grades alone. I think that has more to do with government targets than with the method of assigning grades.
