I reckon the most we can say is that the songs we call traditional/folk songs once were part of* what we could define as 'the music of the people' but, except in a tiny minority of cases (in the UK at least), they have long since ceased to be. As Phil says, these days they are a minority interest - largely the property of enthusiasts, academics, taxiderists and a few musicians who can make a sort of living largely singing them back to the enthusiasts and a few stragglers.

Presumably, back in the good old days of no running water and rampant rural poverty, either everyone was a singer or some people (who had the talent or the bottle) sang and the rest simply listened or joined in the choruses. If it was the latter, even if the music was in common ownership, to be an owner didn't necessarily make you a practitioner. A bit like how music is produced and consumed now, except in the 20th Century the gap between producers and consumers widened. Thanks to cheap music technology, in the 21st Century its narrowing again, just as it should be.

So if what we call "folk music" was the music of the people once upon a time, this could lead us to decide that:

1) Whatever is the music of the people now is by extension, folk music;

or

2) Whatever you might call "the music of the people" now, is not folk music, because the concept of common ownership of music was warped in the 20th Century by mass media, professionalisation, the music industry and the growth of consumer culture.

and this means that

3) The music heard in folk clubs, be it traditional or comtemporary, is no longer "the music of the people" in any sense, because the people aren't interested in that sort of music and haven't been for years**. Some things that breaks out of the folk clubs and enters into the public realm (e.g. Streets of London) become the music of the people because everyone knows them and loads of people sing them. No qualitative judgement implied on my part where this happens.

Meanwhile

4) The old music of the people - be it traditional or contemporary, is the music of people who like that sort of thing. Or some of it, anyway, as this thread makes abundently clear.

This means that

5) it is unlikely that any folk songs written by and taken up by the folk club contingent, however widely, will ever become the music of the people unless they manage to break out of the folk world and become industry products for the consumer society. The rest remains minority music for specialists.

This leads me to conclude that:

6) There is gallons of music out in the world described by 'the people' and the music industry as 'folk music' and consumed as such - music that most folk afficianados wouldn't accept as folk if their lives depended on it. Meanwhile, folk as defined in various ways by the people on this thread - Jim, Michael, Jack, Ian, John, Phil, me, ANYONE - doesn't actually exist.

*************************

* I say 'part of' because all we've got is what was collected, rather than what was or may have been.

** In this versuion of events, the folk boom of the sixties was an aberation: the popularity, for a while of folk, was largely about music industry interest and the ability some musicians to make a living from folk as it coincided with the massive postwar expansion of consumer culture.