Dan Bellman first published the idea of doing a card stab with the pack inside a paper bag; see “The Pierced Card” in Cheerful Conjuring, 1938, p. 18. Wax is used to position the selected card high inside the bag, where it can be stabbed. Instead of a knife, Bellman used an oversized needle threaded with ribbon. On p. 19, he goes on to explain how the trick can be presented with a knife rather than a needle.
Milbourne Christopher reinvented both Bellman's effect and method when he published “The Bag Stab” in Hugard's Magic Monthly, Vol. 4 No. 1, June 1946, p. 224.