A lot of the limits on battle size and fleet size are in place because of computational limitations, trying to make the game playable on a wide variety of hardware.
I don't think it fair to say large ships are generally cheaper. For instance, conquest and hammerhead have the same cost of supplies/month/DP and hammerhead is slightly less fuel/ly/dp. Capitals in general have bad fuel/ly stats.
The biggest reason you can't spam frigates is that you have limited officers and low PPT. Officered ships are so much stronger, they would just slaughter unofficered frigates, particularly if you built the officers and ships with that in mind. The frigates have much less concentrated firepower, and the geometry of battle means they can't all fight at the same time, so more doesn't really help you at some point.
Wolfpack makes having 6-10 officered frigates very viable though. You can also spam tempests, omens and scarabs and do really well against everything other than stations and some particular end-game enemies. The good frigates are very viable, but the bad ones aren't that great but I think that's how it's supposed to be. Not all ships are supposed to be viable/good in combat. Some ships are meant to be an option for logistics, and some are just meant to be fodder that makes the early game a bit easier for you when you fight against them.
I wouldn't mind some buffs from wolfpack for general frigates (more PPT in particular). You have to keep in mind that even if you did make frigate spam really strong, then people would just complain that the game pushes you to spam frigates instead of using the big ships. I think we've struck a decent balance in this patch.