Do you think this is fair? about my sons 1st grade cl/teacher?

Well, I can tell you I wouldn't send my books either. I would consider going to someplace like Half Price Books or a thrift store (thrift stores are amazingly cheap) and buy books that I think would be fun or are like ones I have. As for your son being punished, I think I would call the Principal. You've already talked to the teacher, and I don't think you are getting through to him. I do believe you need to address this and not just let it slide. Your decisions to not participate in the program should not be held against your son. At most, if you do not provide books, is to not allow him to take books from that program home. Do stand up for your child. You are his best advocate.