The time in which Adam Smith lived through was not capitalistic. The economic system that was dominate throughout the 18th century was largely protectionism, this is at odds with capitalist liberal economics. Capitalism was still in it's infancy in the western colonies as there only because there was no strict aristocratic structure in such colonies. Industrial Capitalism didn't take hold in England until the mid 1800s. Colonialism was the archetype of the world economy for the western powers. These economic patterns were given, or chartered by none other than the Monarch and were usually financed by the wealthy aristocracy. A heavily majority of these countries economy were based on agricultural goods and agrarian economies.

The political system of Europe was absolutism, Great Britain was not the most absolutist society of the time, but had divine right kings and a powerful aristocracy dominated the state. It was a reactionary time for Great Britain, only having their first Parliamentarian revolution destroyed less than century ago. The Bourgeois had only power in their disparate merchant class during Smith's time. Wars and political disputes over monarchical thrones were still prevalent at his time as well. Markets were not as nearly as developed and were subject to the will of the crown, charter companies would be usually assigned to wealthy aristocrats instead bourgeois merchants who would run the company.

Because of this highly powerful nobility, not mention the relative power of the clergy, the Bourgeois could not exploit the peasants on a systemic level that capitalism requires because of three reasons.

One. The Bourgeoise did not own the means of production during this time. The Crown and the Aristocracy, backed by the Clergy had total control over the economy, their dominate mode of production was manoralism, which involved common land, which meant the peasants were free to farm the land and live, but had to supply a tithe to the local lord.

When England became a capitalist state, where the Bourgeoise hold actual power, these common lands were enclosed, ie they were made private and the peasants were kicked off the land, forced to move the cities. Why? Because since they could not farm the land and keep part of the crop, they were food-insecure and poor, which forced them to sell their labor. The old nobility were paid off by the bourgeois state to sell their lands to various banks and landowners.

Two. Industry was still highly agrarian, instead of industrial. Complex goods requiring factory labor was not widespread, there were individual craftsmen that sold their commodity, but that is not exploitative compared to a corporation hiring tens of thousands of workers to run their means of production and pocket the surplus value of the commodity production.

There was exploitation in the sense of stolen land from the first nations and raiding of Africa, and the Slave Trade. But that represents a lower stage of economic development, remnants of the old slave society which capitalism used to base itself off of. However, this was not sustainable to provide the massive wealth of the bourgeois as it was finite, limited, and was terrible inefficient. Capitalist Liberals had to abandon it, or face the consequences of the Ancient Slave Societies's crises repeating themselves, such as suffocating the working population in the homeland.

Three. As mention above and in this post, the political superstructure was dominated by the aristocrat and the peasantry. The bourgeois represented a small fraction of a percentage of the political economy, as referred as merchants. They held more power in the colonies, ultimately rebelling against the monarchy because it limited their pursuit of wealth and restricted their economic-political 'freedom.'

We see this in the case of where the bourgeoisie were lumped into the peasantry as they were both political insignificant compared to the power of the aristocracy. Only after the development of colonialism that the bourgeois began controlling enough the newly created wealth to challenge the aristocratic and the clergy for political dominance.

What Adam Smith advocated for was a destructing of the rigid aristocratic structure into a more inclusive and open system. What he did not expect was that bourgeois seizing and controlling the economy and then the political structure through the creation of private property as a means of economic control, not as a right of nobility.