This isn't part of the social contract in parts of the US. Guns are pretty common in rural areas and I've see people open carry in urban areas around Seattle.
He is referring to the principle of the state's monopoly on violence. It's necessary for some violence to exist to maintain internal and external security (police and the military, respectively). The more effective the state, the theory goes, the better able it is to maintain control over the use of violence in its territory.
http://en.wikipedia.org/wiki/Monopoly_on_violence