I follow your argument, nodding my head as I go and then I realize it hasn't "solved" my problem. It's an important way of thinking, but stops short of being a good answer in the daily life of schools.
Am I asking for too much? After all, if it's as sensible as you and I think, how come the world is still plagued by its obsession with punishment?
"In the long run ..." my mother used to say, "he'll pay for it." That satisfied me—and was the basis of the Hollywood code in my youth for how movies must end. But now that I've lived a long time I know it's not true. Nor can I even hope that there's a hell for those miscreants because any God who would support such acts of everlasting torture can't be the God I hope for.
The thirst for personal "revenge" can be transformed, to some extent, into the wish for some benign power who will straighten out the scales of justice. A parent, teacher, older brother, or ... the wise and omnipotent ruler. In the meantime, maybe the "principal's office."
It helps a youngster when adult power appears fair and well-intentioned—and can be "counted on." But getting to that level of trust doesn't happen overnight and isn't always even wise.
A friend visiting Central Park East Secondary School in the old days commented to me that "they seem to trust your good intentions." That did NOT happen overnight, and involved imposing some difficult penalties on occasion. But, alas, it requires keeping the whole community in mind, not just the one student. Is this where we might disagree? When what's good for "x" may be bad for the community-at-large, what does one do?
There are conflicting values involved sometimes between the community and the individual. And having kids pretend to set the rules doesn't solve it.
I wonder if this same dilemma might be connected to our difficulties about the role of grades, awards, honors, etc. in school life. I enter this arena with embarrassment; since I enjoy all those I've received and used them for my own advantage whenever I could. The MacArthur turned me from a "mere teacher" to a wise educator—like the Wizard of Oz. In fact, I enjoyed having been selected. I surely didn't turn down the opportunities it made possible.
We wrestled with this at Mission Hill, which uses narratives and family conferences and portfolios to "report progress" to families. Should the staff nominate one of its members annually for "best teacher" awards the Boston public schools give out? Should we nominate a student for similar recognition? Should we promote competitive sports and honor the winners? Should we have a secret set of grades available to schools that do not accept our approach or create a more traditional public set to go along with our narratives and portfolios? Should we create an "honors" portfolio for students who were willing to go above and beyond?
Did we have to balance what creating situations that "helped" one struggling student might perhaps be unfair to others or to the school's reputation? Is "rewarding" effort fair? Is rewarding "talent" any fairer? Do "rubrics" solve this by suggesting objectivity and neutrality?
Over time I think we grew somewhat more traditional on such matters. It seemed unfair to deprive our staff and students of these benefits. So we nominated a different teacher—on the basis of seniority—every year (as I recall). We also chose the "top" students, and we didn't rotate that. And we gave honors' portfolios. We ended up with two feet in one camp and a third foot in the other.
I'm still in a muddle about this.
P.S. I note that almost all the schools (including my own high school) that refused to give grades invented names that served as surrogate grades and which we translated back into As, Bs, Cs, etc.