This story is clearly a metaphor about Proving.
Two opposed philosophies, personified by the rival leaders of the clan: the Chief and the Heir. One represents stasis, stagnation… the other represents change, growth. Each has its attractive qualities, and each has its drawbacks.
The spirit is the Proving and the knives are simply the means to accomplish it. It is given to each of them equally.
And what do they do with the opportunity? They squander it! Instead of wrestling with the difficult decisions and making a choice, they are overcome by their own weakness and make no choice at all.
This is the moment that the clan proves it is poshlost, unworthy of the Flow. We know this because the clan dissipates - the thing they each coveted most, destroyed. They could have chosen stasis and lived on comfortably, if in shackles; or change, and lived in constant danger, though free. Instead they chose nothing, and nothing is all they became.
The moral of the story is simply this:
Even making a bad choice is less destructive than making no choice at all.