Thus, we at Harvard are proud of the number of candidates whom we reject, and of
the inability of men who are not distingues in intellect to pass our tests.

This is something the American philosopher and psychologist William James wrote in the Harvard Monthly of March 1903 The Ph.D. Octopus.

Brilliancy and originality by themselves won’t save a thesis for the doctorate; it must also exhibit a heavy technical apparatus of learning; and this our candidate had neglected to bring to bear.
To our surprise we were given to understand in reply that the quality per se of the man signified nothing in this connection, and that the three magical letters were the thing seriously required. The College had always gloried in a list of faculty members who bore the doctor’s title, and to make a gap in the galaxy, and admit a common fox without a tail, would be a degradation impossible to be thought of.

"This must be a terribly distinguished crowd,-- their titles shine like the stars in the
firmament; Ph.D.'s, S.D.'s, and Litt.D.'s bespangle the page as if they were sprinkled
over it from a pepper caster."

“No instructor who is not a Doctor” has become a maxim in the smaller institutions which represent demand; and in each of the larger ones which represent supply, the same belief in decorated scholarship expresses itself in two antagonistic passions, one for multiplying as much as possible the annual output of doctors, the other for raising the standard of difficulty in passing, so that the Ph.D. of the special institution shall carry a higher blaze of distinction than it does elsewhere. Thus, we at Harvard are proud of the number of candidates whom we reject, and of the inability of men who are not distingues in intellect to pass our tests.
But the institutionizing on a large scale of any natural combination of need and motive always tends to run into technicality and to develop a tyrannical Machine with unforeseen powers of exclusion and corruption.
…
First of all, is not our growing tendency to appoint no instructors who are not also doctors an instance of pure sham? Will any one pretend for a moment that the doctor’s degree is a guarantee that its possessor will be successful as a teacher? Notoriously his moral, social, and personal characteristics may utterly disqualify him for success in the class-room; and of these characteristics his doctor’s examination is unable to take any account whatever. Certain bare human beings will always be better candidates for a given place than all the doctor-applicants on hand; and to exclude the former by a rigid rule, and in the end to have to sift the latter by private inquiry into their personal peculiarities among those who know them, just as if they were not doctors at all, is to stultify one’s own procedure.
…
The truth is that the Doctor-Monopoly in teaching, which is becoming so rooted an American custom, can show no serious grounds whatsoever for itself in reason. As it actually prevails and grows in vogue among us, it is due to childish motives exclusively. In reality it is but a sham, a bauble, a dodge, whereby to decorate the catalogues of schools and colleges.
…
We advertise our “schools” and send out our degree-requirements, knowing well that aspirants of all sorts will be attracted, and at the same time we set a standard which intends to pass no man who has not native intellectual distinction.

It forms an interesting reading considering this is what we are exactly doing and what is happening around us. For example the rule that prevents permanent appointments in colleges if the candidate is without a PhD. Or for that matter the ‘stamping’ that happens if you are from a so called privileged institute.
As the first quote that I have used from the article, summarizes the way our society recognize academic talent. If you are the selected ones from 10,000 odd people then indeed you are smart and the institute that selects you is indeed greatest. The ratio of the people applying for the courses to the ones that are actually accepted forms a good indicator of the ‘quality’ of the institute. The same institutes when choosing a faculty would apply even higher standards and even more people with decorations, on the list.