If you compare a 26" MTB with low pressure knobblies against a 700c racing wheel, of cource 700c will be faster, but put a mid-sized touring style tyre on both , and inflate both to the same pressure, and the difference is marginal.
More important is the fact thet 700 c is the largest wheel size which will easily fit into an average size frame. For someone who is 5'4, they will be using a smaller frame. 700c will be too large, and the frame will have to be compromised to fit the extra-large wheels.
I saw a couple on 2 custom touring bikes from the same builder. One was a standard 700c fast touring bike with 700c x 28mm. The woman's bike was a small fast touring bike with 26" x 1.25" tyres. Both were well proportioned, well designed bikes, one for a big person, the other for a small person.
Does any manufacturer make a small, well proportioned "hybrid" bike using 26" wheels. In the UK, we have a company called Orbit who do just that.