I think the meaning of 'use' had set you on the wrong track, plus an assumption that English always was as it is now.
The meaning of 'use' here (all definitions from OED) is not the sense of
'To put to practical or effective use; to make use of, employ, esp. habitually.'
nor
'To observe, practise, or engage in.'
but
IV. To accustom; to be accustomed to
20 (c) With to and infinitive. Now only in pass. in past tense, Now regional and rare.
example: J. S. Winter’ Bootle's Children xi. 86 Which..had stirred Terry's heart just as it had been used to stir it years and years ago.
(Some passive examples in the late 18th and 19th centuries show a transition towards sense 20c(b) 'With a gerund. To have come to expect a particular course of events to unfold' eg 'She was well used to entertaining herself.'.)
So the usage in Animal Farm is correct and can be read as
'knives with which Mr Jones had been accustomed to castrate the pigs'
However a writer writing today would be less likely to use this construction and might instead opt for something like
'knives with which Mr Jones had been accustomed to castrating the pigs'
The sentence is correct for its time.