A few reasons:
1) Crazes happen. They pass. They may come again
2) In the 70's a lot of clubs became taken over by people playing new forms of music(which their adherents labelled, confusingly, "folk"). Naturally when the proportions of the new music outweighed the the original, people who liked folk (original definition) started leaving in droves. Unfortunately,many of them were not interested in the new stuff, and there was no law to say they should be. New people came in keen to try out their own compositions(or to listen to others'), but not in sufficient numbers to replace those they had driven out. The new people shouted abuse at the oldtimers, calling them folknazis. Not surprisingly, they left even quicker. QED.
3) The rise of the session. A lot of people found different ways to perform and enjoy their music( they took the music out of the folkclub seedbeds and released the plants into the wild, if you will). They liked what they had set up, and never(or rarely) went back to the clubs.