Confusing law and gospel leads to soul destroying theological error. There is, however, no confusion in Scripture about this. The distinction is there in the text, it can be arrived at exegetically. Reformed theologians in the sixteenth and seventeenth centuries did not invent two systematic categories called the "covenant of works" and the "covenant of grace" and impose them on Scripture. No, as they looked at the texts that spoke of God's covenants they saw two different types of covenant. Horton helpfully summarizes it this way:
The deepest distinction in Scripture is not between the Old and New Testaments, but between the covenants of law and the covenants of promise that run throughout both.
The two covenant traditions are distinguished both in form and content. There is a covenant of law (the prelapsarian covenant with humanity in Adam as well as the Sinai covenant), according to which each and every person swears to personally fulfill the stipulations.
There is also a covenant of promise (including the promise made to Adam and Eve after the fall, to Abraham and Sarah, Noah, David, and the new covenant), according to which God swears to bring redemption through the promised heir (seed).
These two covenants traditionally are united by many bonds, yet always remain distinguished. As we will see, they come into sharp contrast only when the question is raised as to the justification of the ungodly.
Michael Horton, Covenant and Salvation: Union with Christ, p. 17-18