I think the problem with 'externalities' is that they're little more than convenient fictions that fly in the face of basic physical concepts like conservation

I think the problem with 'externalities' is that they're little more than convenient fictions that fly in the face of basic physical concepts like conservation of mass and energy. Any economic theory that relies on excluding 'externalities' to measure economic growth is purely nonsensical. Fundamentally, economics needs to adopt realistic system-level concepts, such as 'primary production' (gross photosynthetic input to a system like a lake). Then you can actually start to calculate how productive a hectare of land can be. This also clearly explains why concepts like 'infinite growth in a closed system' are so nonsensical. As far as capitalism, it's important to note the huge differences between 'investment capitalism' (Wall Street) and 'commodity capitalism' (Main Street). The latter is much more rationale, as it's not based on fairy dust, but actual real things, like farmers growing potatoes. Similarly, there are many areas of the economy that are best managed without any market influence, but rather by state-managed tax-financed programs (basic infrastructure development for example).