That's true - but on the other end of the spectrum, I know when I started in model railroading in 1971, no one would have believed the No.1 gauge boom that took place when LGB started making American narrow-gauge equipment!!
Perhaps it might have surprised Mr. Marklin in the 1900's had he known how the hobby would evolved by the mid 20th century but, just like N gauge, LGB's #1 narrow gauge equipment had established itself firmly in Europe well before it ever ventured across the pond. That LGB, et al. went into production of American narrow gauge after it was clear that there was a ready market over here for even their quaint European prototype trains, is not surprising...the model railroad market in Europe encountered a serious, progressive decline in the 1990's (witness all the big companies over there that failed and had to be bought out) and going where the money is, i.e. the U.S., was really a quite logical step. For manufacturers over here, it was just a matter of jumping on the band wagon. Even so, I'd doubt #1 narrow gauge today amounts to much more in the way of sales than S gauge, making it a very small market segment.
Also consider that there seems to be a certain degree of "craze" factor in our hobby, where a certain size or type of equipment becomes a novelty for a time. We saw HO narrow gauge interest spike dramatically in the 1980's and one might say it was futuristic trains (Aero Train, Talgo, et al.) in the late 1950's. All in all, the story of our hobby's development is a most convoluted and interesting one.
CNJ999