Does having grades help or hurt students? (Because I heard of a school where going to class was optional and for the first two weeks students didn't go to class. After that they started going because they wanted to learn instead of being forced. I'm not sure if it's real, though.)
I have been curious about this for a long time, and I have taught classes that gave grades and others that didn't, so I have seen it from both sides.
Probably the most prominent critic of grades currently is Alfie Kohn. You might be interested in this article, in which he summarizes his analysis of the effect of grades on motivation. Kohn argues that giving grades makes students less interested in what they're learning, draws them to look for the easiest possible task, and reduces the value of their thinking. Students who are focused on getting better grades eventually come to see the grade and purpose of education, and they often lose a love of learning. Students at schools where grades are heavily emphasized, or who have parents who give them monetary rewards for grades, are more likely to cheat.
Kohn has some good insights and research to back up what he says, and I think that grades will often have a detrimental effect on students who are highly motivated to learn because of their own intrinsic curiosity. On the other hand, there are students who have low intrinsic motivation who will learn only if there is some extrinsic motivation. Since a modern classroom has students of all types of motivation, grades seem to be a necessary evil. Probably the best solution is to give grades, but not to focus on them as the sole goal of education. This is a hard balance to create, especially since parents have the central role in creating expectations, and so the school's role is limited. This summary of research has a good bibliography if you want to read further.
I used to teach non-credit classes at community college. Most of the pupils in these classes were senior citizens, but there were some younger people, too. Students are drawn to these classes for the purpose of learning, and there are no grades. I found these classes to be very enjoyable, and the students always did extra work to keep the discussions lively. If I could make a living teaching this type of class, I would enjoy it.
The difference between the students in a non-credit class and a public school setting is that the non-credit classes are completely voluntary, and the students are paying to attend. They therefore are made up of students who are intrinsically motivated. Since middle school and high school are compulsory, you have to develop the class to account for both types of students.
I should also say that I know of students who start school with a great deal of internal motivation, but struggles in one or two areas makes it hard for them to get exemplary grades, which causes their love of learning to deteriorate. Students like this can often start to feel like they are not valued because they repeatedly get sub-optimal grades, and it is hard to engage intellectually with a community that you feel does not value you. Evaluating students on their “sense of wonder” and “depth of inquiry” is designed to combat this deterioration, but it is hard to prevent in all cases. It would be nice if we could give grades only to those students who are not intrinsically motivated, but that is not possible.
There are also students who come to school brimming with curiosity who DO do well in school, but who attach their ego so strongly to the notion of “being an A student” that they replace their love of learning with a desire to do better than other students in the class. I hope that they get their curiosity back when they are older and are not constantly being evaluated.
I think the school you are referring to is Summerhill, which is an English school that has been around for almost 100 years. Classes there are optional, but tend to be well attended. There have been schools in many countries, including the U.S., that are based on the program. The school has supporters and detractors, but there is no denying that there have been numerous successful graduates. The reason the school is not necessarily a good laboratory for determining the best education for everybody is that it is a very expensive boarding school, and the students who are there tend to come from families that value learning enough to select a school like that. In other words, it is a selected community that does not represent the variety of students that wind up in a public school (or public charter school).