A Description of Social Contract Theory

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Social Contract Theory

According to social contract theory (SCT),
“morality consists in the set of rules governing behavior, that rational people would accept, on the condition that others accept them as well.” The social contract theory holds that in earliest history man lived in a "state of nature." No government existed. Each man was only as secure as his own power and mental awareness could make him. By agreeing with one another to make a state by contract, men within a given area joined together, each surrendering personal freedom as necessary to promote the safety and well being of all. By this contract the members created a government. The social contract gives rights and responsibilities to both the citizenry and the government. For example, in The United States, citizens yield the powers of prosecution of, and punishment for, criminal offenses to the judicial branch of government. The government, for its part, bears the responsibilities of maintaining public safety for the citizens through the police, court systems, correctional facilities, and all supporting structures.

Stockholder/Shareholder Theory:
Rough version: corporations/businesses have
only one obligation - to maximize profit for
Shareholder theory defended by:
● Appeal to property rights of shareholders.
● Appeal to contract of business manager.

Stockholder Theory: precise
version (Friedman)
● A business manager is obliged to
maximally serve the interests of the
shareholders of the business, so long as
she does not break the law or coerce,
deceive, cheat or kill while doing so.
● Other stakeholders are to have their interests
served only if this works in the favour of
Stakeholder Theory:
Rough version: businesses/corporations have
“corporate social responsibilities” with respect to
employees, customers and society at large
(besides the goal of making some profit for

Stakeholder theory defended by:
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