It was directly a result of some of the choices made by Bell and plausibly Teletype.
Early switching computer systems that had user accounts at Bell also didn't echo back for passwords as some terminals were mixed-duplex, from what I've gleaned in the very odd corners of ESS systems. I suspect the idea is that the model they were working from were touchtone telephones and rotary phones, so numeric passcodes were the standard, and you heard & saw those already? Less noise on paper tapes? The possible list of options goes on and on.
Bell Labs was... Different than your average office or telco environment, I should add.
But that's a swag at best today, without knowing the people that worked on it.