Fluid power circuits come in two broad types -- pneumatic systems and hydraulic systems. Pneumatic systems use pressurized gas, hydraulic systems use liquid hydraulic fluid.
Hydraulic systems by definition (hydra being the root phrase meaning 'water') use liquid in their operations. It does not make sense to ask why a hydraulic system uses liquid instead of gas. It does, however, make sense to ask why one would prefer a hydraulic system over a pneumatic system.
Using liquid instead of gas to operate power circuits has advantages. In particular, these systems operate at a higher pressure and are thus capable of generating more force using smaller actuators. A hydraulic system is more efficient in this sense.
One advantage of pneumatic systems is that they have greatly reduced noise levels. It may also be preferable to use a pneumatic system in cold temperatures, as gases can generally withstand sub-zero temperatures better than liquids.
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