Very interesting questions Jason asks. Not sure I have much to add to the discussion, but here's my try...
Having grown up in Wareham, MA, my first interest in railroad history is the railroad on Cape Cod. The railroad first reached the Cape in May 1848 (Sandwich) and was soon extended to Hyannis (July 1854). Nantucket money played a large part in completion of the Hyannis extension, and the railroad's wharf was soon completed in late September. With this, Nantucket steamships were immediately rerouted via Hyannis, away from Nantucket's rival port, New Bedford.
Hyannis' railroad wharf would remain Nantucket's steamship connection until 1872, when the Woods Hole branch was completed. With this, Woods Hole became the principal islands connection.
However, the Hyannis railroad wharf continued a thriving freight business into the early twentieth century. The Cape enjoyed excellent railroad facilities, but low tariff freight -- commodities like lumber and coal -- were shunned by the railroad in favor of higher-paying freight. Schooners made a business handling these commodity freights. Even coal for the railroad was delivered via the Hyannis wharf.
However, by the 1930s, this business was dying out. On September 10th, 1937, the rail line between Hyannis station and the railroad wharf was abandoned.
So in answer to Jason's questions, I suspect the Two Foot Empire would have prospered for a period of time but ultimately would have died out in the 1930s, a victim of improved highways and trucks.
- Bill