It seems like you are trying to build a Prony Brake - Google around, there are quite a few hits.
Basically, the mechanism holding the brake calipers needs to go to a weigh scale so torque can be measured directly.
Horsepower is a function of torque and RPM
Yes, you can use another DC motor as a generator and dump the power into a resistor load bank. But, really, that seems like the long way around although it has the advantage that MOSFETs can be used to control the resistive load. Given some kind of microcontroller with PWM output, this could make a very nice dynamometer. I'm pretty sure the Smock Check dynos use something like this.
If you build up a mechanical Prony Brake, you can add a control loop to increase/decrease braking while collecting RPM and torque. You get linearity by using the torque feedback to control the brake force.