This object is a common site in U.S. supermarkets, at least in regions without plastic bag bans:
This shopping bag dispenser has a predecessor that dates back to the 1800s. At the time, America was dotted with general stores or country stores, mom-and-pop shops that played Walmart's current role in local economies.
By 1852, mass-produced paper bags had been invented. General stores stocked them in several sizes, to make carrying sundry goods more convenient for their customers. Subsequently, these objects below began showing up, original inventor unknown:
Here we see an early example of product design evolution. The darker-colored of the two objects was certainly the earlier of the two designs. It's simple, functional and not particularly attractive. It would have been the easier of the two to manufacture, requiring nothing more than straight cuts, the corners roughly knocked off with a block plane.
The more elaborate design would have been far costlier to manufacture, requiring machinery capable of making curved cuts (or more likely, a skilled artisan wielding a scroll saw). But there are ergonomic improvements: The sizes of the bags are printed on the curved struts, and one can see, even from the sides, the level of bags remaining. The cast-iron cage atop the structure, which held twine for packages that required tying, is an early solution to a UX design problem.
The text on the fancier of the two units reads "Pat[ented]. May 20 '84."
While the majority of the designs spotted on antique sites sport simple floral panels on the side panels…
…at least one retailer added a little P.O.P. pizzazz:
That unit has had the twine holder broken off, judging by the jagged edge of the wood. Perhaps an unruly customer was unhappy with the quality of the snake oil.
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Any clue as to how they cut the string?
Most likely scissors. Probably kept in an apron, or behind a counter.