What is horsepower? Why is it calculated on the basis of horse’s physical strength?

In the late 18th century, huge quantities of coal were required to keep up with the increasing demand generated by Industrial Revolution. Proprietors of coal mines in England used strong dray horses for hauling coal out of the underground seams. Some horses, strapped into a harness, were lowered into the shaft to work at the bottom of the pit. One of the serious problems was that few of the mines, especially located far below surface, were flooded with large quantities of water, which had to be pumped out constantly. Dray horses were used for this task also. In fact, horses were the major power source for mines as well as farms.
The Scottish inventor of steam engine, which was to replace horses, had to associate the power output of his engine with that of a horse’s power. Watt did all his calculation on this basis and therefore, horsepower became a standard unit of power. The electrical equivalent of one horsepower is 746 watts in the international or SI system of units and heat equivalent is 2,545 BTU/British Thermal Units. James Watt himself defined one horsepower as 550 foot-pounds of work per second. If an engine lifts a 550-pound object to a height of 2 feet in 1 second, it is working at the rate of 1,100 foot-pounds per second and is delivering 2 horsepower.

Additional reading:
Horsepower (Wikipedia)

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