A private company did it the honest way and laid a more efficient track. The government paid per mile of track laid which you can imagine can go wrong all kinds of ways.

A very good point - though as a counter the plank-road mania of the early 1800's was a fully private sector road bubble: http://en.wikipedia.org/wiki/Plank_road

Only after the crash of 1857. Prior to that American railroad networks were quite decentralized and much more competitive (not only with themselves, but also with canal systems). Most were financed by local entrepreneurs and often by the British and American companies that sold track on credit.

BTW: This sub-comment thread is a testament to how good HN still is at bringing together reasonable/thoughtful people - thanks guys.