I’d have thought that ‘the free market doesnt make subways’ is a market coordination problem, not an externality one?

Meaning, I think that ticket sales can a good job of capturing the costs and benefits of transportation - the benefits to the consumer and the costs to the producer. It’s worked well in other areas of transportation, like passenger boats and planes, and the market mostly works well in those areas.

So I’d have guessed that issue with subways, different from planes and ships, is that you have to buy the rights to large portions of underground land in order to build your lines in contiguous fashion. It’s hard for private developers to get the rights to these lands, if one landowner refuses to sell, it can block the construction of an entire line. This is why rail, dam, and highway projects tend to be coordinated by the state. They all suffer this problem, which doesn’t apply to transport by air or sea, as air and sea lack similar private property issues to trip over.