During the dawn of digital photography, a full frame sensor was enormously expensive to produce. The technology was just not ready to produce perfect silicon wafers of that size. The first FF dSLR, 6MP [Contax N Digital][1], was $7000, a sixth of average household income. Canon 1Ds was announced at $8k. 

Smaller sensors were (and still are) several times cheaper, and with the 1.5 or 1.6 crop factor, the quality difference was (and still is) not that big to justify the cost difference for most people.

  [1]: http://www.luminous-landscape.com/reviews/cameras/contax-n-digital.shtml