The narrow gauge was profitable when the competition was horses and horse drawn wagons moving over private toll roads. Once the tax payer started paying for roads and eventually paved roads, and the invention of reliable motor transport, it became uncompetitive. Added to that is the relatively inflexible routing. Added to that is shippers wanting low rates and politicians willing to give them without a view to the future.
Had traffic remained at levels that gave profitability, the railroad probably would have been standard gauged (as was the mainline through the Rockies) and eventually dieselized.