Moral excellence (virtue) (703) (arete) refers to any preeminence (moral, intellectual, military). Arete is a term denoting consummate ‘excellence’ or ‘merit’ within a social context. To the Greek philosophers, it meant “the fulfillment of a thing.”
Arete came to mean quality of life which made someone or something stand out as excellent. Arete never meant cloistered virtue or virtue of attitude, but virtue which is demonstrated in life.
When anything in nature properly fulfills its purpose, that fulfillment was referred to as “virtue' or "moral excellence.” Land that produces crops is “excellent” because it is fulfilling its purpose. The tool that works correctly is “excellent” because it is doing what a tool is supposed to do. A believer demonstrates moral excellence or virtue by living the way He now has the potential to live (possessing everything necessary for life and godliness, His precious and magnificent promises, partaker of His divine nature).
Arete is used 5 times in the NT (Phil; 1P; 2 Pe 2x) and in the NASB is translated excellence, 2; excellencies, 1; moral excellence, 2. The KJV translates it as praise, 1; virtue, 4.
Vine adds that arete
properly denotes whatever procures preeminent estimation for a person or thing; hence, “intrinsic eminence, moral goodness, virtue,” (Vine, W E: Vine's Complete Expository Dictionary of Old and New Testament Words. 1996. Nelson)
The English definition of virtue speaks of a particular moral excellence, a beneficial quality or power of a thing, a commendable quality or trait or a capacity to act (potency). Virtue is a disposition or character trait that tends to lead to what is good.
Collins English Dictionary writes that virtue is
"the the quality or practice of moral excellence or righteousness"
The Columbia Encyclopedia adds that
"virtue [Latin = manliness], in philosophy, quality of good in human conduct." (Columbia Encyclopedia. 6th ed.)
TDNT (although somewhat difficult to follow) has the following note on the background of arete (in its use outside the NT), writing that arete...
"might be rendered
a. "eminence"... It can refer to excellence of achievement, to mastery in a specific field...The subject of achievement may be lands, animals, objects, parts of the body, but mostly it is man. Just as the ways in which the Greek world reflects on human achievement, on specifically human achievement, and indeed on man, are manifold and distinctive, so are the different contents of the word arete. Already in the time of Homer it is used to denote one particular human achievement, namely,
b. “manliness” or martial valour."
c. “merit,” with reference to rolls of honour. At the time of the Sophists the intellectual aspect of the term on the one side, and the ethical, dating from Socrates and Plato, on the other, achieve a prominence unknown in ancient Greece. It is now that the word (arete) acquires the particular meaning which becomes predominant and which primarily influences our own impression of it. Arete becomes a leading tool in the language of Greek moral philosophy in the sense of
d. “virtue.”... in philosophy “virtue,” which in Hellenistic Judaism...can approximate righteousness" (Kittel, G., Friedrich, G., & Bromiley, G. W. Theological Dictionary of the New Testament. Eerdmans) (Bolding added)
T. M. Dorman explains that arete...
In its original classical usage arete denoted either the quality of excellence (in any sphere) or the renown that such excellence duly receives. In addition, the plural form was used, often with reference to the gods, in the sense of “mighty deeds” or “manifestations of power.” Later, in Greek ethical philosophy the term came to be used in a more specific and restricted sense to represent the most comprehensive category for moral excellence (“virtue”), the general heading under which more specific virtues were arranged. Used in this ethical sense, arete achieved some currency in Hellenistic Judaism, especially in writings with an apologetic bent (notably Philo, Wisdom of Solomon, 4 Maccabees). But probably because it connoted a moral excellence that was the result of human achievement rather than of obedience to God’s Torah, it remained a marginal term in Jewish moral discourse, subordinate to and often qualified by the OT concept of “righteousness” (Bromiley, G. W. The International Standard Bible Encyclopedia, Revised. Wm. B. Eerdmans) (Bolding added)
When a Christian lives a life which brings glory to God, he is fulfilling his purpose and thus exhibits “excellence”. True virtue in the Christian life is not “polishing” human qualities but producing divine qualities that make the person more like Jesus Christ.
Notice that Peter applies this same word (arete) to Christ in (v3) and here to the growing believer. As an attribute of the incarnate Christ, it is appropriate that arete should be evident in the lives of His disciples as well.
J Vernon McGee explains arete or "virtue" (KJV) this way
The word virtue is not confined to chastity. We use it today when we refer to a woman being virtuous or morally chaste. Actually, virtue as Peter uses it has to do with excellence and courage. It means that you have the courage to excel in life. You don’t have to live a little, mousy Mr. Milquetoast life and be a yes-man to everything that comes along. You can stand on your own two feet, state your position, and be counted for God. We certainly need that kind of “virtue” in this hour in which we are living, and the only way we can get it is through the knowledge of Christ. This is the formula Peter is giving to us here: “through the knowledge of him that hath called us to glory and virtue.” (McGee, J V: Thru the Bible Commentary: Thomas Nelson or Logos) (Bolding added)
Note that each of the 7 traits is modified by the definite article, "the" (ten), which makes each new trait specific. They may not substitute just any trait.
William Barclay commenting on this verse explains that arete is...
"very rare in the New Testament but it is the supreme Greek word for virtue in every sense of the term. It means excellence. It has two special directions in which its meaning moves.
(a) Arete is what we might call operative or efficient, excellence. To take two examples of its usage from widely differing spheres—it can be used of land which is fertile; and it can be used of the mighty deeds of the gods. ( It could describe the excellence of the ground in a field, the excellence of a tool for its purpose, the physical excellence of an animal, the excellence of the courage of a soldier, and the virtue of a man.) Arete is that virtue which makes a man a good citizen and friend; it is that virtue which makes him an expert in the technique of living well.
(b) Arete often means courage. Plutarch says that God is a hope of aretē, not an excuse for cowardice. In 2 Maccabees we read of how Eleazar died rather than be false to the laws of God and his fathers; and the story ends by saying that he left his death for an example of noble courage (aretē) and a memorial of virtue, not only to young men, but also to all the nation (2 Maccabees 6:31). In this passage it is not necessary to choose between these two meanings; they are both there. Faith must issue, not in the retirement of the cloister and the cell, but in a life effective in the service of God and man; and it must issue in the courage always to show whose it is and whom it serves." (Barclay, W: The Daily Study Bible Series, Rev. ed. Philadelphia: The Westminster Press or Logos) (Bolding added)
Arete is used by Paul exhorting the saints at Philippi to
"let (their) mind dwell on" "whatever is true, whatever is honorable, whatever is right, whatever is pure, whatever is lovely, whatever is of good repute, if there is any excellence (arete) and if anything worthy of praise, let your mind dwell on these things." (see note Philippians 4:8)
The key to godly living is godly thinking, as Solomon wisely observed:
Watch over your heart with all diligence, for from it flow the springs of life” (Pr 4:23)
Vine commenting on (Philippians 4:8) adds that "excellence" 
"properly denotes whatever procures preeminent estimation for a person or thing. In heathen usage it meant only the moral excellence of self-reliance and courage. But the New Testament raises its use to a higher meaning. It is used of God in 1 Peter 2:9 and 22 Peter 1:3. Here and in 2 Peter 1:5, it is used of general moral excellence in the estimation of God." (Vine, W. (1997, c1996). Collected writings of W. E. Vine. Nashville: Thomas Nelson)
Peter uses arete to remind his believing readers that they are now 
"a chosen race, a royal priesthood, a holy nation, a people for God’s own possession, that you may proclaim the excellencies (arete) of Him who has called you out of darkness into His marvelous light." (see note 1 Peter 2:9)
The world is in the dark (spiritually), and does not know the “excellencies” of God, but God has chosen believers out of that spiritual darkness and given us the purpose of living in such a way ("now for this very reason applying all diligence in your faith supply moral excellence"!) that the lost and spiritually blind would be able to see the "excellence" or "virtue" of God in our lives. We are citizens of heaven who are to be living advertisements (active ambassadors) for the virtues of God. Our lives should radiate this marvelous light into which God has graciously called us.
APPLICATION: Is your life radiating or repressing the excellencies of God?
Wayne Barber gives an interesting explanation of what it means practically to supply moral excellence asking...
What does moral excellence have to do with us? In 2 Peter 1:4 (see note) we are "partakers of the divine nature" (nature = disposition), i.e., we have the actual disposition of Christ within us! We are virtuous or morally excellent Christians when we start fulfilling the purpose of not just telling the world we have the divine nature, but when the world begins to see that divine nature within us. (Ed note: which is analogous to the example of land that produces crops being referred to as excellent because it fulfills its purpose)
When a Christian fulfills his purpose, he is a virtuous person. But a person who goes around talking about it all the time and yet has no reality to back up his talk is not manifesting a virtuous life. These folks are not living according to what they have. To understand Who lives in them every Christian should read Ian Thomas' The Saving Life of Christ ...(this simple book will help them) to understand Who lives in them...(i.e., that) it is Christ living His life through us. As Wayne decreases and Christ increases the world sees Christ when they look at Wayne...this is the virtuous (morally excellent) person. It is His death that saves us, but His life transforms us because His life lives through us. This is Jn 3:30 where Christ increases and we decrease, so that when the world looks at us they see Christ, not us! Christ-like development is coming out of your faith from the character of Christ that was already there! Faith is energized by the WORD of God.
So faith comes from hearing, and hearing by the word of Christ. (see note Romans 10:17)
As I read the Word of God, obeying what I read, something already there is energized and it begins to come out of me--the nature & disposition of Christ Himself! That's when we are virtuous. Then you're not just talking it, but living it! This excellence cannot be produced apart from our faith. The secular world has a certain kind of "excellence or virtue" (the Greek philosophers like Aristotle all use this word), the difference being that they tried to bring in the humanistic virtue and in so doing replaced the divine virtue. E.g., the positive thinking hucksters say if you have a positive attitude about something, you can do it (this is a veiled form of humanism). The "virtue" Peter is describing is not something you do, but something that God does in you, because you possess the faith from which comes the divine character of God." Wayne goes on to help us understand the spiritual dynamic alluding to Gal 5:22-23 which "describes the "fruit", which is that which is already contained within the seed.
The fruit of the Spirit [not the individual but the Spirit] is agape love--you in your own strength simply cannot love like Jesus unless that love comes from Christ in you because this word for love, agape, describes love that is selfless, love that never takes but only gives...It is not me working for God. Yes, there are works, but it's the ''work'' of obedience so that it is Christ working through me. It is not us, but it is Christ living in us and working through us. If you think that you can love like Jesus loves, just try waking up tomorrow morning and telling Him "Lord, I'm going to love like You did." And God will put a brother in your life like you didn't even know existed! God knows who to drop on us to show us the futility of this approach. And then you cry out in frustration "Oh God, I can't!" And He will say ''That's exactly right and now would you like to know a little more about what moral excellence is? Would you like to know a little more about what virtue is? It doesn't come from you. It comes from Me Who lives in you." Just try coming up with that self-less love that never takes but only gives. You simply cannot do it in your own strength. This ability came as part of the complete "package" you received when you believed."
Barber goes on to describe a similar dynamic in the other aspects of the fruit of the Spirit reminding us that
joy does not equate with happiness [happiness is determined by circumstances] but only comes from a conscious relationship with God and you cannot get it anywhere else.
Peace, the absence of strife, only comes from Jesus, Who is our peace.
Kindness, godly sensitivity to one another only comes from God...And all of these aspects of fruit are produced by the divine disposition that is within us that is brought out by our faith. You don't need to go to some ''higher life'' conference. You just ''simply'' with all diligence don't quit until you see God produce this character in your life. Don't worry. He will help you out by using the classroom of "Circumstances 101" and then graduate you up to "Circumstances 203".
In sum arete describes anything that fulfills its purpose or function properly. In this context it means a Christian who fulfills his or her calling
AND IN YOUR MORAL EXCELLENCE KNOWLEDGE: en de te arete ten gnosin: (Click devotional "Know to Grow") (2Pe 1:2 3:18 1Co 14:20 Eph 1:17,18 5:17 Php 1:9 Col 1:9 1Pe 3:7)
Knowledge (1108) (gnosis) refers to experiential knowledge and not merely to a passing acquaintance. Gnosis is understanding, correct insight, truth properly comprehended and applied and is experienced as one obeys the will of God as shown in Jn7:17 where Jesus uses the verb ginosko (root of gnosis.) 
"If any man is willing to do His will, he shall know (ginosko) of the teaching, whether it is of God, or whether I speak from Myself."
Jesus clearly associates the obtaining of gnosis or experiential knowledge with a willingness to obey God's will. This virtue involves a diligent study and pursuit of truth in the Word of God. This kind of knowledge does not come automatically but calls for obedience.
Bible Knowledge Commentary adds that this knowledge
"comes not from intellectual pursuits, but is spiritual knowledge which comes through the Holy Spirit and is focused on the person and Word of God."
Wiersbe adds that this gnosis
"suggests practical knowledge or discernment. It refers to the ability to handle life successfully."
Hiebert says this gnosis
"speaks of a practical knowledge that admits of expansion and enables its possessor to discern between right and wrong in facing the duties of life. In order to maintain a balance, practical intelligence and moral insight must govern a resolute and aggressive faith. This knowledge stands over against the spurious "knowledge" of the false teachers. The cure for false knowledge is not less knowledge but a knowledge characterized by moral insight. The operation of such knowledge distinguishes the believer's conduct from his former life in spiritual ignorance (see note 1 Peter 1:14)."
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Are you living on the spiritual (FM) band (only you can determine this by your conduct and your actions)? True spiritual gnosis or knowledge is going to govern the way you live. True spiritual gnosis is going to keep your conscience pure and out of your conscience flow your convictions and out of your convictions flow your lifestyle. Peter realizes his time is short and so he is is reminding them that they know something and to get back in on that band that they know and start living like they ought to live." (modified from a lecture by Dr. Wayne Barber)
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Spurgeon had a number of pithy sayings regarding spiritual growth...
He who does not long to know more of Christ, knows nothing of Him yet
It is needful to dwell on this head, because many Christians appear to think that if they are just believers, it is enough. We do not in business think it is enough if we barely escape bankruptcy. A man does not say, if his dear child has been ill in bed for years, that it is quite enough so long as the child is alive. We do not think that of our own bodies, that so long as we can breathe it is enough. 
Those who are never tried usually possess a poor, tottering faith but trial, especially persecution, is like the rough March wind which goes howling through the forest, and while the young oaks are almost torn up by the roots at first, it loosens the soil for them, and they send out more rootlets, till they get such a firm grip that they defy the hurricane. That which shakes them at first strengthens them afterwards. 
Napoleon used to say, “Conquest has made me what I am, and conquest must maintain me.” O Christians, remember that you must advance or backslide; you must build higher and higher, love must become more and more supreme in your souls, or you will decline. 
It is one mark of advanced grace that the sublime truths which concern eternity are increasingly valued. 
I wish, dear friends, that half the time we spend in trying to better our circumstances were spent in bettering ourselves after the right fashion; and that even a tenth of the trouble we take to fit our circumstances to our desires were used in fitting our desires to our circumstances. 
I believe that we make more real advance in the divine life in an hour of prayer than we do in a month of sermon-hearing.
There are some that seem to be born with knowledge—Christians that come to a height in Christ very rapidly. But these are only here and there. Israel did not produce a Samson every day. 
Brethren, let us never sit down content with small degrees of sanctification.
From: Exploring the Mind and Heart of the Prince of Preachers: Five-Thousand Illustrations
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Know to Grow - Several years ago I interviewed a student at Santa Monica College for a radio program I was hosting. He told me that he was interested in finding out all he could about religion. But when I asked him why, he explained that he wanted to expand his education. This student was curious about what motivates religious people to do what they do, but he said he was not the kind of person who gets up in the morning with a desire to do God's will.
Is it possible that we as Christians are like that? Do we have a desire to learn more about the Bible for reasons other than to know God better and to live as He wants us to? The apostle Peter said we should be increasing our understanding for one primary purpose--to bring our faith to maturity. He pointed out that knowledge is an indispensable element in the process that leads to self-control, perseverance, godliness, brotherly kindness, and love. This progression toward maturity results in knowing Jesus Christ in a deeply personal way (2 Pet. 1:5-8).
God doesn't ask us to increase our knowledge for the sake of knowledge. He asks us to increase our understanding so that we can grow into God-centered, loving, productive people. That's why we should want to know. —Mart De Haan (Our Daily Bread, Copyright RBC Ministries, Grand Rapids, MI. Reprinted by permission. All rights reserved)
Gaining knowledge of God's Word
Can be a worthy goal
If it leads us to the Lord
And nourishes our soul. --Sper
Knowledge can be dangerous if it doesn't lead to wisdom.
SPIRITUAL
GROWTH
Manser in his book Zondervan Dictionary of Bible Themes has the following Scriptural summation on the nature of spiritual growth..
Having given spiritual life to his people, God expects them to grow to maturity.
God desires the spiritual growth of his people - Mt 5:48; Heb 6:1 See also 2Co 13:9-11; Eph 1:4; 2:10; 7-Eph.3.19" class="scriptRef">3:17-19; Php 3:12; 1Th 4:1,7; 2Ti 1:9
Christlikeness is the goal of spiritual growth- Ro 8:29 See also Eph 4:13-15; Php 2:5; 1Jn 3:2-3
Aspects of spiritual growth -
Growth in grace -2Pe 3:18 See also Pr 4:18; 1Pe 2:1-3
Growth in faith -2Th 1:3 See also 2Co 10:15
Growth in love -1Th 3:12 See also Ro 5:5; 1Co 14:1; Php 1:9; 1Th 4:9-10; Heb 10:24; 1Jn 4:7-21; 5:1-3
Growth in understanding -Ps 119:27; 1Co 14:20 See also Ps 119:97-99; Ro 12:2; 16:19; 1Co 13:11; Eph 1:17-19; Php 1:9-10; Col 1:9; Heb 5:14
Growth in holiness -2Co 7:1 See also Eph 5:25-26; Heb 2:11; 10:10-14; 12:14; 13:12; 1Pe 1:15-16
Growth in fruitfulness -Jn 15:16 See also Mt 13:23 pp Mk 4:20 pp 8.15" class="scriptRef">Lk 8:15; Jn 15:2,8; Php 1:11; Col 1:10
Growth in contentment -Php 4:11-12 See also 1Ti 6:6; Heb 13:5
Examples of spiritual growth In individuals -
1Sa 2:26 Samuel; 
Lk 1:80 John the Baptist
Jesus Christ: -Lk 2:40,52
Paul: Ac 9:22; 1Co 9:26-27; Php 3:12-14
Ac 18:26 Apollos; 
Phm 11 Onesimus
3Jn 2-3 Gaius
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http://www.preceptaustin.org/2_peter_15-7.htm#Moral
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Greek Word Studies ( - )
Read freely Greek Word Studies from the Austin Precept text commentary of the Bible in text and pdf format. Precept Austin is an online free dynamic bible commentary similar to wikipedia with updated content and many links to excellent biblical resources around the world. You can browse the entire collection of Commentaries by Verse on the Precept Austin website.We have been "bought with a price" to be "ambassadors for Christ" and our "salvation is nearer to us than when we believed" so let us "cleanse ourselves from all defilement of flesh and spirit, perfecting holiness in the fear of God" "so that when He appears, we may have confidence and not shrink away from Him in shame at His coming." (1Cor 6:20, 2Cor 5:20, Ro 13:11, 2Cor 7:1, 1Jn 2:28)