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In order for passive investing to produce returns, stocks need to be regularly priced. Active trading produces the prices.

Active traders are trying to beat one-another, but at an institutional level the point isn't to beat the market, but to make the market.

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This is true, and there are many strategies that hedge funds use besides just buy(long) or sell(short) the market. High frequency trading is one, another is spread trading. With spread trading, you take 2 stocks that are highly correlated to each other, let's say Ford and GM. You buy one, and you short the other. You are technically market neutral, so if they both go up or down, you are still break even. When the 2 stocks start trading closer or further apart by a couple of standard deviations, you can put on a trade that bets the 2 stocks will revert to the mean of their historic ratios.

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