I am not an engineer, but there’s a number of issues with water: Rust, High-ish temperatures (water boils at lower temperatures than oil), and Lubrication.
Hydraulic fluid nowadays tends to be a type of oil with a bunch of additives, but before it was popular (the 1920’s) they *would* use water. ([wiki link](https://en.wikipedia.org/wiki/Hydraulic_fluid#Composition) for further reading)
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