Comment by dragonwriter

He encouraged relatively free international trade rather than mercantilism, and and a lot of people have turned that into being an advocate for "capitalism" against a preceding system, never paying attention to the fact that mercantilism was an international trade policy response by nations with emergent capitalist economies trying to figure out how best to operate within that system, not an alternative (much less predecessor) economic system.

AFAICT this is (like a lot of the modern mythology of capitalism) started as a response (in the sense of an attempt to build a similar-but-opposed structure, not a response in conversation like a rebuttal) 19th Century anti-capitalist critics (and, in particular, Marx), part of which was setting Smith up as the preceding and opposing figure; a kind of capitalist Christ so that Marx could be the anti-Christ.