I think most faculty would agree with the statements that follow. First, I love teaching and working with students. It takes a lot of time, but the teaching part can be and, on a number of occassions each semester, is rewarding and fun. However, I hate assessment - writing and grading assignments and exams. This also takes a lot of time, and is neither fun or rewarding.
Sometimes writing an assignment or exam problem can be fun. Like when I am able to work in a pop culture reference. For example, I've written capital budgeting problems where Vandelay industries is considering shifting to in-house latex manufacturing in addition to sales. And I've written questions about Rob Blagojevich's income statement, and the expense budget at Sterling Cooper ad agency. Unfortunately, students don't appreciate my humor while taking an exam (or any other time for that matter). But I digress.
I am still relatively young, and can understand/remember the student perspective. While an undergrad, you think you are busy. How do I study for that exam, finish the paper I've been procrastinating, attend my club meeting, prepare for that job interview......and play 6 games of Madden tonight? Maybe the paper can wait, and I didn't really want that job anyway.
But I don't want to make students sound lazy or naive. They are simply optimizing under the constraints they face within the system they have been placed. Grades matter. So do other things like extracurriculars. And the social aspect of college is also important. If you are going to go out drinking three nights a week, your early 20s is the time to do it and get it out of your system. I did. Now, I often find myself falling asleep by 10 pm on a weekend (and it is glorious). But I digress again.
Students want the best grade possible while having to put in the least amount of work. That is not a slam, that is what they should do. They are reacting to their incentive structure. While some don't mind studying, most can think of other things they would rather be doing (there is the odd, often in more ways than one, exception to this rule - the academic).
We (teachers/instructors/professors/faculty) would like to maximize the amount a student learns (which is positively correlated with effort for most people), and we could really give a crap about grades.
Grades are a ranking system, pure and simple. It is what the purchasers (employers) of our product (trained students/employees) demand. They need a metric (or at least a finite group of metrics) to be able to tell who is good, and who is not so good - thus, the GPA.
The solution to this problem, like any constrained system in economics, involves tradeoffs. The students work a little harder than they would like, learning less than we would prefer, and earning a grade a little lower than they would prefer. Simple. Elegant. Perfect.
If only I didn't have to write and grade those damn exams to reach this equilibrium....