This article describes grade inflation as compromises the signaling value of grades and undermines their capacity to achieve the functions for which they are intended. Therefore, the authors argue that grade inflation must be understood in terms of the signaling power of grades. Analyzing data from four nationally representative samples, they find that in the decades following 1972: (a) grades have risen at high schools and dropped at 4-year colleges, in general, and selective 4-year institutions, in particular; and (b) the signaling power of grades has attenuated little, if at all.