How was the arrangement of letters on a keyboard decided?

Typing machines DID start out as alphabetical. One can see a vestige of this in the middle row or 'home row' of a QWERTY keyboard where you see the letters DFGHJKL. Someone involved with the design of the earliest keyboards did some research regarding the most commonly used letter pairs and that resulted in some rearrangement of the keys.

In 1874 Remington & Sons manufactured the first commercial typewriter, called the Remington Number 1. This typewriter was designed by Christopher Sholes and used the "QWERTY" keyboard we are all familiar with.

Christopher Sholes' original prototypes had a problem with the bars colliding with each other and jamming. So the story goes that he arranged the keys with the most common letters in hard to reach spots, to slow typists down and try to avoid this problem.