We have about 70 members working on the project I am on and I have had quite a few guesses, but nobody has been able to tell me the answer. The tool is a No. 49 Adjustable Bit Gauge. It was manufactured by Stanley from 1905-1961 and works as a depth stop for auger bits. 
In the 1939 Stanley Tools catalogue I have, it is listed for $1.25 which was almost half the price of a No. 9 1/2 Block Plane at $2.75 and so would have been a fairly expensive purchase. In comparison, today a Stanley No. 9 1/2 sells for $42.50 while a bit gauge's closest living relative, the collar depth stop may be had as a set of five for only a few bucks. There is not really a direct comparison today though, as collared depth stops are for twist drills (a.k.a. steel bits) up to 1/2 diameter and the Stanley No. 49 was for auger bits up to 1".
To use the bit gauge, you feed the auger bit, shank first, through the gauge before putting the auger in the brace. The bit gauge can be spun up and down on the flutes of the auger to adjust the depth and locked in place with the two wing nuts.
