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The Social Contract can refer to any number of specific philosophical theories, however overall it discusses the relationship between the individual, society, and the government. Hobbes is perhaps most famous for the idea, his basic take was that the individual gave up some of his or her rights in exchange for security and order from their government. Rousseau disagreed claiming that we are given rights in exchange for agreeing to protect others rights in the society. Locke however best outlined the modern American view of the social contract, as the "consent of the governed" which Jefferson later used in crafting the Declaration of Independence, and is a concept implicit to the U.S Constitution. This theory claims that individual rights and powers are surrendered to the government with the idea that they will obey the rule of the people, and that whenever that trust is broken, they no longer have the right to rule.
The social contract theory is a hypothetical. It basically states that all of is are born "evil" and we "sign" a social contract to adapt and fit in to a society. This further argues that people who did not "sign" this contract are the ones in society that cause trouble (serial killers, etc). I always tell my students that there is no physical piece of paper we sign at a young age, obviously, but there is a contract of sorts we sign to fit in, adapt, and survice.
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