It does not seem fair that people should be created only to be damned before they ever live a day, and yet it's my understanding that's what happens. 

I've hears stories of ill babies miraculously surviving just long enough to be baptised and then dying, saved. And it seems arbitrary to me that some babies get taken from this world by no fault of the mother, before she gets a chance to baptise them, and others live just long enough to be saved despite neither being any more deserving than the other(as they aren't even physically capable of sin yet, nevermind reason). And yet that's what happens. 

Don't assume for a moment that I'm calling God injust or unmerciful, I'm just having trouble understanding the rationale behind why those who never got a chance to be baptised should be punished for it. I know God cannot err or do anything unrighteous, so surely there is an explanation out there. I just haven't found it. 

Forlorn, of course you realise that nothing is arbitrary for God. I don't believe that God punishes children who have no chance of baptism. There are even more of these that we realise, sadly as a result of abortive contraception without the mother ever realising she has been pregnant.

I believe the  live in a happy state which we do not understand.

We do not know what the outcome would have been for any child in the circuмstance of his  survival to live out his life. Do we know if that child would have lived a sinful life? Been condemned to hellfire and taken others with him. We don't know.

Just a few thoughts..

Don't assume for a moment that I'm calling God injust or unmerciful, I'm just having trouble understanding the rationale behind why those who never got a chance to be baptised should be punished for it.

They are NOT "punished" by any stretch of the imagination.

It is impossible for us to understand the mind of God; just as it is impossible for us to look at the sun without being blinded by it. Our human eyes have limitations, so do our intellects. We simply do not have the ability to understand God's motives, while we are here on earth.

However, something we can be certain of, is that God is NOT unjust.

From Romans, Chapter 9:

¹⁴ What should we say, then? That God is unjust? Out of the question!
¹⁵ For speaking to Moses, he said: I am gracious to those to whom I am gracious and I take pity on those on whom I take pity.
¹⁶ So it is not a matter of what any person wants or what any person does, but only of God having mercy.
¹⁷ Scripture says to Pharaoh: I raised you up for this reason, to display my power in you and to have my name talked of throughout the world.
¹⁸ In other words, if God wants to show mercy on someone, he does so, and if he wants to harden someone's heart, he does so.
¹⁹ Then you will ask me, 'How then can he ever blame anyone, since no one can oppose his will?'
²⁰ But you -- who do you think you, a human being, are, to answer back to God? Something that was made, can it say to its maker: why did you make me this shape?
²¹ A potter surely has the right over his clay to make out of the same lump either a pot for special use or one for ordinary use.
²² But suppose that God, although all the time he wanted to reveal his retribution and demonstrate his power, has with great patience gone on putting up with those who are the instruments of his retribution and designed to be destroyed;
²³ so that he may make known the glorious riches ready for the people who are the instruments of his faithful love and were long ago prepared for that glory.

The unbaptized who die with only original/venial sin on their souls go to Limbo, not hell.  Limbo is not a place of punishment, like hell, but it’s also not a place of reward, like heaven.  

The unbaptized infant did not merit the joys of heaven nor do they deserve the pains of hell.  It’s been said by some mystics that many children who go to Limbo escape hell through the mercy of God, who forsaw that they would reject Him and He allowed them to die as infants without baptism so as to escape eternal fire.  

O the depth of the riches of the wisdom and of the knowledge of God! How incomprehensible are his judgments, and how unsearchable his ways!  (Rom 11:33)

I'm just having trouble understanding the rationale behind why those who never got a chance to be baptised should be punished for it.

They are not being really "punished" for it. Not on an individual basis, I mean.

The eternal loss of the Beatific Vision is our default state since our vey conception, thanks to the Original Sin. This most dreadful condition of ours can only be helped with the Sacraments instituted by Jesus Christ and dispensed by the Holy Roman Catholic Church.  

I've had 3 miscarriages.  It IS hard to understand why God allows something for one person, and a different thing for someone else.  However, I agree with Pax Vobis:  

1.  "The unbaptized who die with only original/venial sin on their souls go to Limbo, not hell.  Limbo is not a place of punishment, like hell, but it’s also not a place of reward, like heaven."

2.  "The unbaptized infant did not merit the joys of heaven nor do they deserve the pains of hell.  It’s been said by some mystics that many children who go to Limbo escape hell through the mercy of God, who forsaw that they would reject Him and He allowed them to die as infants without baptism so as to escape eternal fire."  

My babies in Limbo are very happy there; they don't know that they're missing the beatific vision.  God did NOT have to create this place for them.  But he's so good, He did.  And I'm glad to know that they're safe.  I'll never, ever have to worry about Hell or mortal sins for any of them.

And consider that God did not even HAVE to create them; but He DID.  At least they have souls--and bodies--and have been given that opportunity to be happy in that natural state forever.  I'd rather have that for them than not have them at all.    

Thanks for all the responses guys.

I've had 3 miscarriages.  It IS hard to understand why God allows something for one person, and a different thing for someone else.  However, I agree with Pax Vobis:  

1.  "The unbaptized who die with only original/venial sin on their souls go to Limbo, not hell.  Limbo is not a place of punishment, like hell, but it’s also not a place of reward, like heaven."

2.  "The unbaptized infant did not merit the joys of heaven nor do they deserve the pains of hell.  It’s been said by some mystics that many children who go to Limbo escape hell through the mercy of God, who forsaw that they would reject Him and He allowed them to die as infants without baptism so as to escape eternal fire."  

My babies in Limbo are very happy there; they don't know that they're missing the beatific vision.  God did NOT have to create this place for them.  But he's so good, He did.  And I'm glad to know that they're safe.  I'll never, ever have to worry about Hell or mortal sins for any of them.

And consider that God did not even HAVE to create them; but He DID.  At least they have souls--and bodies--and have been given that opportunity to be happy in that natural state forever.  I'd rather have that for them than not have them at all.    

My post was made in response to learning about my grandmother having a miscarriage and worrying about what happened to the child for many years after. It's comforting to hear that it turned out fine.