The discipline of political economy has conceptualized the notion of liberty and the respective role of the state and market in furnishing that liberty in financial markets. The roles of the state and market have been shaped by events such as the South Sea Bubble, the Great Crash of 1929, the collapse of Bretton Woods and the increasing incidence of financial crashes. The main task of this book is to identify how the different schools of political economy have defined the concept of liberty in a variety of ways and to examine how much freedom should be given to market actors operating in...

This book analyzes an important debate in political economy about the process of liberalization of financial markets and its relationship to economic development. The debate has been driven by rich industrialized economies to the detriment of the performance of less developed economies. Mexico provides a rich context for analyzing the process of financial and capital account liberalization because Mexico's pattern of modernization has not been liberal. It has been founded upon a model of industrialization based on state regulation and clear limitations upon the freedom of market actors.

The reasons of Mexicos financial crisis can be assessed by considering economic, financial and political reasons during the period 1988-1994. The political economy of Carlos Salinas' administration (1988-1994) was based on a policy of openness and stability for foreign investors. From 1994 Mexico had started to have a close contact with foreign markets. The Central Bank of Mexico had four elements to defend the Mexican exchange rate. The first was the scheme of bands that was kept until December 1994 to engender certainty in the financial markets. The second element was to increase interest...