DISCOUNT, a compensation for the advance of money which is not due till after a certain period. The person ad vancing the money, had he retained it, might have made in the given time a cer tain rate of interest ;, therefore, if he ad varices it for the use of another, it is equi table that he should be allowed the same gain as he would have made by retaining it in his own hands during the time for which it is lent. Thus, if a person is en ' titled to 1601. at the end of a year, and has occasion for the money immediately, the sum that ought to be given as an equivalent thereto, allowing 5 per cent. interest, is 91'. 4s. 9+d.; for the discount of is 41. 15s. 2114 which is then retained, will, if improved at 5 per cent. interest, amount at the end of the year to 51. and consequently the lender having then 1051. will have made the same gain as he would have made by retaining the'money. This is the true principle of discount, accord ing to which the tables published by Mr. Smart are, computed ; but in com mercial transactions, the general mode is, to deduct from the sum to be discount ed, the simple interest on that sum for the time for which it is advanced. Thus, if 1001. is payable at the end of six months, the discount deducted is 21. 10s. being the half of a year's interest ; or, if 100/. is payable at the end of one month, the discount deducted is 8s. 4d. being the twelfth part of a year's interest. By this means, although the legal rate of inter est to be received for money lent is re stricted to 5 per cent, the person who employs his money in discounting makes a greater rate of-interest, and the shorter the periods are for which he discounts, the greater his annual gains. In discount
ing bills of exchange, the days of grace are included in the time the bill has to run, the discount being calculated to the slay on which the money is receivable.
Discounting of bills of exchange is one of the modes in which bankers employ the money placed in their hands ; generally discount at 5 per cent. but in time of peace, when the current prices of the public funds are high, they are of ten willing to discount at 41 or 4 per cent. The bank of England, and other public banks, likewise employ very con siderable SUMS in discounting : the bank of England never discount any bills which have more than 65 days to run.
Discount is likewise used for certain customary allowances Made by manufac turers, and wholesale, dealers, to those who purchase goods of them in order to sell retail. In some trades this discount is merely in lieu of credit, in others it is made on all goods sold, whether for im mediate payment, or on credit ; and is very different on different articles, being on some not more than 1 or 2 per cent. while on others it amounts to 50, and sometimes more than 60 per cent.