The words ‘principle’ and ‘policy’ have been very common in legal discourse but their meaning is far from self-evident. Principle, in relation to judicial decision-making, has been, almost invariably, a term of approbation; policy has sometimes been used with approval in this context, but has sometimes been contrasted with principle and has carried the implication that policy should be excluded from judicial consideration. Abstract debate conducted in terms of ‘what is the true nature of contract law?’ has often seemed to run into an impasse, with, on the one side, insistence on rigorous exclusion of all considerations of utility, convenience or policy, and assertion, on the other side, that such are the only relevant considerations. A historical perspective suggests that the dichotomy thereby implied is over-simplified. Principle and policy have not been contradictory, in the sense that one must be chosen to the exclusion of the other. On the contrary, they have been mutually interdependent. A proposition has rarely been accorded the name ‘principle’ unless it has been perceived to lead to a just result in the particular case under consideration, and to be likely to produce results in the future judged to be acceptable: the concept of principle, at the point in time when it has been invoked, has implicitly looked not only to the past, but also to the present and the future, incorporating residual considerations of justice in the individual case as well as what may broadly be called prudential considerations. On the other side, the influence of policy has been very frequent in contract law, but has generally been found appropriate only where a governing proposition can be formulated that is perceived as stable, workable in practice, appropriate for judicial application, that explains past decisions thought to have been rightly decided and that supplies an appropriate guide for the disposition of future instances. When such propositions have been formulated they have been called principles, but they are not thereby emptied of policy. A consequence of this interrelationship is that, from a historical perspective, contract law cannot be reduced to any single explanatory principle, internal or external.