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Controlling Inflation with the interest rate
Today, we fight inflation by raising the interest rate, which removes demand for goods which are funded by borrowing. Which in turn reduces the need for labor. Which results in unemployment which destroys the wealth of the workers which are laid off and fuels the business cycle.
There are several problems with fighting inflation with the interest rate. Using the interest rate is a very blunt tool. It affects all borrowing, not just borrowing to fund the product(s) which are experiencing inflation due to a limited supply. It also has a long delay before having the desired affect. Most importantly, is reduces employment which in turn reduces fuels the business cycle which adversely affects overall savings rate which slowest future economic activity. Lastly, it encourages consumer borrowing which reduces the purchasing power of labor since any money spent on interest is not available for purchasing the needs and wants of those that work for a living. The economy is therefore not as productive as it could be for a majority of the citizens.