Is it better to grade students against one another or against themselves?

Once, in an English class in high school, my teacher gave me a B on a paper that I thought was reasonably good. I argued that my paper had actually been better than another student’s, who received a B+.

My teacher agreed that my paper was better than the other student’s, but said she gave me a B because she knew I personally could produce a much better paper than I had.

At the time I took it as a compliment and let it go. Now that I am in the position of teaching and having to assign grades, though, I am not really sure if that’s fair or not.

In the class I’m teaching now, I see an extremely vast range of ability. I have some students who will struggle to pass and others who blow me away with each assignment.

When one of my stars hands in work that is acceptable, but not as good as they could have done, I’m often tempted to grade them more harshly. Conversely, when the kids who are really struggling turn in something much better than what I had expected, I’m tempted to grade somewhat more generously.

Is this fair? What’s the best thing to do for the students in this case?