Reddit mentions of The Craft of the Japanese Sword

That's very nice of you to say… here's the short version:

• Found The Craft of the Japanese Sword in my local library in ~1997. I was instantly hooked.
  
• Bought my first Japanese style production sword in 2000.
  
• Acquired my first nihontō in 2003.
  
• Was and have been collecting & reading books, frequenting Sword Forum / myArmoury / The Nihonto Message Board, subscribing to newsletters, visiting exhibits clubs and shows that whole time and since.
  
• On very rare occasions (like every couple years), have added to my own humble collection.
  
  In short it has been my primary hobby (among too many other hobbies) for a good while. That being said, I still have mountains to learn when compared to many of the well-known collectors out there, to say nothing of the genuine experts who serve on shinsa panels and the like.
  
  I started posting with a vengeance in /r/SWORDS about a year or so ago. I had stumbled across a backlog of posts where I felt that people with genuine pieces were getting, um, well-intentioned but incomplete or misleading answers. Here I'm kind of a medium-sized fish in a tiny pond, but don't let that fool you, with respect to the general nihontō community I am a small fish in an ocean. ;-)

This is actually talked about in "Craft of the Japanese Sword" by the swordsmith Yoshindo Yoshihara, who is mukei bunkazai(Living National Treasure of Japan).
It was based off of a particular smith(who I can't remember the name of). It is exactly as you said. He would sit and cut his charcoal with a pair of scissors. He was a slow maker, but was the most prominent at the time, so the government based the restriction off of him.

I am sure that the law is kept in place, partially out of tradition, and partly to limit the amount of gendaito, so the market isn't saturated.