The idea of the index fund was born in academia. Many great minds contributed to the concept, but first among them are Harry M. Markowitz, Merton Miller and William F. Sharpe, who shared the 1990 Nobel Prize in economics for this work. The first commercial index fund was introduced by Wells Fargo Bank in 1971, four years ahead of Vanguard, under the leadership of John McQuown. Today, at least a trillion dollars are invested in index funds worldwide, probably twice that. Most of it that is managed by banks on behalf of pension funds, university endowments and charitable institutions.
Mutual funds make up a trivial portion of worldwide index-fund investing.
I used to work at Wells Fargo, starting several years after McQuown and the first generation of indexers had already moved on to other things. But at the end of the day, we were delighted to have him out there winning hearts and minds for us. Index funds naturally lower the costs of investing because they eliminate expensive investment managers and traders, and they cut transaction costs by reducing the volume of portfolio turnover. The index has no costs whatsoever, but investors have management fees, commissions, research expenses, taxes and so on. Costs are a leak in the bucket of performance.