It's interesting that you visualize it as a circle. In political science, sociology, and anthropology, what you describe is referred to as "the social contract". Basically, it is the guidelines by which society is governed; the sum of all behaviours society has agreed to view as acceptable, it is decided on by the people (ie. the majority) and those who do not abide by it are to be punished in order to maintain order. It is the goal of government to ensure that all people adhere to the social contract. Rousseau wrote a great deal about this. If the topic interests you, there is a great deal of literature on the topic now that you are armed with the most common term for this topic, "social contract".